Legal Definitions - advance premium

An advance premium refers to a payment made for an insurance policy or other service before the coverage period officially begins, or before the final, exact cost of the service is fully determined. It is an upfront payment made to secure future coverage or initiate a service.

Here are some examples:

• Example 1: Homeowner's Insurance Renewal
  A homeowner's insurance policy is set to expire on March 31st. To ensure continuous coverage without any lapse, the insurance company sends a renewal notice in February, requesting payment for the next year's premium by March 15th.

  Explanation: The payment made in March for coverage that will begin on April 1st is an advance premium because it is paid before the new policy period officially starts.

• Example 2: Commercial Property Insurance for a New Business
  A new restaurant is preparing to open its doors on October 1st. Before they can legally operate, they need to secure commercial property insurance. The insurance provider requires the first six months' premium to be paid in full by September 20th to activate the policy.

  Explanation: This payment made in September for coverage that commences in October is an advance premium, as it secures insurance for a future period before the business even begins operations.

• Example 3: Professional Indemnity Insurance for a Project
  An engineering firm bids on a large, multi-year infrastructure project. As part of the contract requirements, they must have professional indemnity insurance in place for the entire duration of the project, starting from the contract signing date. The insurer requires an initial payment covering the first year's estimated premium to be made when the policy is issued, even though the project's work might not fully ramp up for several weeks.

  Explanation: The initial payment for the professional indemnity insurance, made at the policy's inception to cover future work on the project, is an advance premium. It secures coverage for a period that is yet to unfold.