Understanding Final Premium Audits

What Are Final Premium Audits?

When you initially purchase a General Liability or Workers’ Comp policy, your premium (or cost) is calculated based on estimated figures, like projected sales or payroll. However, these estimates may not always be accurate – that’s where Final Premium Audits come in.

Final premium audits are reviews conducted by insurance companies at the end of an insurance policy period to ensure that the premium you paid matches up with your actual business activity.

Essentially, they compare the estimated figures you provided at the start of the policy, like projected sales or payroll, with the actual figures at the end of the policy term. This process helps adjust your premium to accurately reflect your business’s risk or exposure during that period.

Why Final Premium Audits Matter

The purpose of a Final Premium Audit is to reconcile the difference between estimated and actual figures. This process ensures that the premium you pay accurately reflects your business’s real risk exposure.

General Liability Insurance Audits

For General Liability policies, audits focus on your sales figures. If your actual sales are higher than your estimates, your risk level is considered higher, which could result in owing more money to your insurance company. Conversely, if your sales are lower, your risk decreases. However, it’s important to note that you don’t receive a refund for General Liability policy audits if your risk was overestimated.

Workers’ Compensation Insurance Audits

Workers’ Comp audits center around your payroll expenses. Similar to General Liability, if your actual payroll is higher than estimated, that means your risk was higher, and you might owe additional money. The key difference with Workers’ Comp is that if your payroll is less than estimated, (meaning your risk was lower than estimated), you could get a refund for the difference.

Navigating Discrepancies and Disputes

Audits can be complex, and discrepancies might arise. If you’re unsure about your audit results, having an independent insurance agent can be invaluable. They can assist in disputing findings and ensuring a fair audit process. 

Final Premium Audit Checklist 

To prepare for an audit, maintaining accurate records throughout the year is crucial. This includes tracking all sales and payroll information. For a detailed list of necessary documents, click here.

Final Premium Audits play a vital role in aligning your insurance premiums with your actual business activities. As your business grows and changes, these audits help ensure your insurance coverage keeps pace.






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