Provisional Premium
A temporary premium amount charged at the beginning of an insurance policy when the final premium cannot be determined until additional information becomes available. The premium is later adjusted based on actual exposures, payroll, or other rating factors.
Example
“The contractor paid a provisional premium of $8,000 for workers' compensation coverage, which will be adjusted at the end of the policy year based on actual payroll figures.”
Memory Tip
Think 'Provisional = Probably will change' - it's a temporary amount that will likely be adjusted later.
Why It Matters
Provisional premiums allow insurance coverage to begin immediately even when complete rating information isn't available. This prevents gaps in coverage while ensuring the final premium accurately reflects the actual risk exposure, protecting both the insurer and insured from under or overpayment.
Common Misconception
Many policyholders think provisional premiums are final amounts and don't expect adjustments. This can lead to surprise bills or refunds at audit time when the actual premium is calculated based on real exposures rather than estimates.
In Practice
Johnson Construction starts a new policy with a provisional premium of $10,000 based on estimated annual payroll of $500,000. At the end of the policy year, an audit reveals actual payroll was $650,000. The final premium calculation shows they owe $13,000 total. After crediting the $10,000 already paid, Johnson receives a bill for an additional $3,000 to settle the difference between provisional and final premium amounts.
Etymology
From Latin 'provisus' meaning foreseen or provided for temporarily, combined with 'premium' from Latin 'praemium' meaning reward or price paid for protection.
Common Misspellings
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See Also
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