Legal Definitions - gross premium

The gross premium refers to the total amount of money an individual or entity pays to an insurance company for an insurance policy. This sum encompasses all components of the cost, including the base coverage, administrative fees, taxes, and any additional charges or riders, before any potential discounts, dividends, or refunds are applied. Essentially, it is the full, upfront price the policyholder is charged for their insurance coverage.

Here are some examples to illustrate this concept:

• Example 1: Auto Insurance Policy

  A driver receives an annual bill for their car insurance policy. The bill itemizes the cost for collision coverage, liability coverage, a premium for uninsured motorist protection, and a state-mandated tax. The final total amount listed on this bill, which the driver must pay to keep their policy active, represents the gross premium. It's the complete cost before any potential loyalty discounts are applied at renewal or if they were to cancel mid-term and receive a partial refund.

• Example 2: Homeowner's Insurance for a New Purchase

  When a family purchases a new home, their mortgage lender requires them to have homeowner's insurance. The insurance company quotes them a total annual payment that covers property damage, personal liability, and includes a small fee for flood zone assessment and a policy issuance charge. This comprehensive figure, which the family pays to secure coverage for their new home, is the gross premium. It includes all the individual costs bundled together.

• Example 3: Small Business Liability Insurance

  A small consulting firm purchases a general liability insurance policy to protect against potential lawsuits. The insurer's invoice shows the base cost for liability coverage, an additional charge for professional indemnity, and a regulatory surcharge. The sum of these items, which the consulting firm pays to the insurance provider, is the gross premium. It's the full amount paid for the policy before any potential experience-based dividends might be returned to the policyholder at the end of the policy term.