What is a deposit premium in commercial liability policies?

A deposit premium in commercial liability policies refers to an estimated premium charged at the beginning of a policy term. This type of premium serves as an initial payment based on the insurer's estimate of the total premium for the coverage period. The deposit premium is often adjusted at the end of the policy term based on the actual exposure or risk, typically leading to either a refund or additional payment depending on the final calculations.

Commercial liability policies are designed to provide coverage for various risks faced by businesses, and determining the estimated premium at the outset allows both the insurer and the insured to manage cash flow and budgeting for the insurance costs effectively. This method helps to ensure that the insured has some level of coverage in place while allowing for adjustments based on real-world data related to the insured’s operations throughout the policy term.

The other choices do not accurately reflect the nature of a deposit premium, highlighting why they are not correct in this context.