Legal Definitions - premium tax

Premium Tax

A premium tax is a specific type of tax levied by government entities, most commonly states, on the gross premiums collected by insurance companies. This tax is typically imposed on the insurer for the privilege of conducting insurance business within that jurisdiction. While the tax is paid by the insurance company, its cost is often factored into the premiums charged to policyholders for various types of insurance, such as life, health, property, and casualty policies.

• Example 1: Car Insurance Policy

  Imagine a driver in California pays $1,200 annually for their car insurance policy. The insurance company collects this premium. The State of California, like many other states, imposes a premium tax on the total amount of premiums collected by all auto insurers operating within its borders. The $1,200 the driver pays includes a portion that helps cover this premium tax, which the insurance company then remits to the state treasury.

• Example 2: Group Health Insurance for Employees

  A large technology company based in Texas provides health insurance for its 5,000 employees. The company pays a substantial annual premium to a health insurance provider for this group policy. The State of Texas levies a premium tax on the total premiums collected by that health insurance provider from all its clients in the state, including the large premium paid by the technology company. This tax contributes to state revenue, often without being explicitly itemized on the company's insurance bill.

• Example 3: Homeowner's Insurance for a New Home

  When a family purchases a new home in Florida, they are required to buy homeowner's insurance. They pay an annual premium of $2,500 to protect their property against damage. The insurance company that issued the policy is subject to Florida's premium tax, calculated as a percentage of the total premiums it collects from all its homeowner policyholders in the state. This means a portion of the family's $2,500 premium indirectly contributes to this state tax, which the insurer is responsible for paying.