Glossary
Surplus lines tax, defined
A charge a state levies on the premium of a policy placed with an insurer that is not licensed in that state, collected and remitted by the broker who placed it. It replaces the premium tax a licensed insurer would have paid, and it usually comes with a small stamping fee.
In practice
It appears as a separate line on the invoice for any policy written with a non-admitted carrier, whether a hard-to-place home in wildfire country, a new restaurant with no loss history, or a commercial umbrella at limits the admitted market will not write. The rate is set by the insured's home state, and the broker is responsible for filing the affidavit showing the coverage was first offered to admitted carriers and declined. It is not refundable on cancellation in some states, and it is charged on any endorsement that adds premium. Because it sits on top of a premium that is often already higher than the admitted market, a client comparing quotes should compare the total cost including it. The analysis shows the all-in price and states clearly that the carrier is non-admitted, with what that means.
A worked example
Suppose a hillside home is declined by admitted carriers and placed with a surplus lines insurer at a premium of $5,000. The state's charge on that premium is, say, $175, plus a small stamping fee, so the invoice reads about $5,200. Suppose the owner later adds a detached workshop for an additional $600 of premium; the charge applies to that endorsement too. Hypothetical figures.
Applies to: Home InsuranceCommercial Umbrella Insurance