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Guaranteed Cost

Guaranteed Cost


Guaranteed Cost — premiums charged on a prospective basis without adjustment for loss experience during the policy period. A rate is agreed on at the inception of the policy and is multiplied by the appropriate exposure base (e.g., sales, payroll, number of vehicles, or square footage) to yield the premium. With respect to auditable lines of coverage (e.g., workers compensation and general liability), only a change in the exposure base during the policy period will cause the premium to vary. In other words, if the actual exposure base at the end of the policy period is more or less than the estimate used at policy inception, the premium will be adjusted accordingly. Loss experience during the policy period does not affect the premium for that period.

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