What is Minimum Premium?

What is Minimum Premium, or oftentimes abbreviated MP, in Business Insurance? It's an excellent question. Simply put, it's the least (or minimum) amount the insurance company charges in premium to write the policy. For some business classifications, it could be as low as $250 and for others it could be as high as $30,000. The bottom line, it's their minimum premium. It could apply to any type of insurance and is usually brought up when presenting a quote, increasing or decreasing property coverage, or decreasing or increasing gross sales. 

Lets look at an example on how it can apply to Business Personal Property. Insured starts a new business and moves in. At the time, they don't have a lot of property coverage because it's just a professional office. They grow and add more people, furniture and inventory. Knowing they need to add coverage for property, they call their agent to add Business Personal Property. Agent adds it and premium doesn't go up. Customer is happy because premiums didn't increase and they got more coverage. Looking at it from the other way, though, might not be as favorable. Customer downsizes and wants to lower coverage. Agent lowers Business Personal Property, but insured is still at Minimum Premium (MP), so there's no decrease in premium.  

Minimum Premium can also be a topic conversation when it comes to gross sales. As we've discussed before, gross sales is one of the key factors that can impact premium. Lets say Minimum Premium for a policy is $5,000, and gross sales are at $250,000, what if you only do $100,000 in gross sales? Will there be return premium? No, because MP is $5,000. 

It's always important to ask about Minimum Premium, so you can manage expectations. If you have any questions about Business Insurance and Minimum Premium, please feel free to contact me. 

Jason Matison
Commercial Insurance Agent
Austin, Texas

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