Deposit Premium

Deposit premium is the amount you pay at the start of an auditable policy, calculated from your estimated exposures for the coming year. Because lines like workers' compensation and general liability are priced on payroll or sales that will not be fully known until the term ends, the insurer charges an upfront figure based on projections. That upfront charge is the deposit premium — effectively a good-faith prepayment against a bill that gets finalized later, once real numbers replace the estimates.

This matters to small businesses because the deposit is only as accurate as the estimate behind it. If you project $400,000 in payroll but actually run $520,000, your policy was under-collected during the year and you will owe more. If you overestimated, you paid too much. The reconciliation happens through a premium audit after the term, where the insurer compares the exposure basis you actually generated against what the deposit assumed. Keeping realistic projections and clean payroll records throughout the year is the best way to avoid a jarring audit result.

The key nuance is what happens at reconciliation. If actual exposures exceed the estimate, the audit generates an additional premium you must pay; if they fall short, you may receive a return premium. Note that many policies carry a minimum premium, so the deposit may already represent the floor the carrier will keep regardless of how low your final exposures come in. Budget for the possibility of an audit bill rather than assuming the deposit is your total annual cost.