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An extra premium is a type of additional charge or fee that is added when the regular or standard premium charge is not sufficient to cover all events or possibilities associated with a given situation. The term is most often utilized in situations in which insurance is issued to provide short- or long-term protection from the occurrence of certain events. Should the insurance provider deem a certain type of event as being outside the scope of coverage included in the basic premium charge, then the additional or extra premium will be assessed as the means of extending that extra coverage to the insured party.
The application of an extra premium helps to serve two purposes. For the individual or entity seeking the additional protection, the tendering of the premium makes it possible to obtain coverage above and beyond the basic protection included in the insurance policy. At the same time, the application of the extra premium helps to protect the interests of the insurer, who would stand to incur additional costs should those additional or extra events actually take place. By receiving the extra charge, the insurer helps to keep the risk level within reason, making it possible to accommodate the client.
Depending on the policies and procedures of the insurance provider, the extra premium may be assessed and paid in a couple different ways. One approach is the tendering of what is known as a flat extra premium. With this strategy, the insured party pays an extra lump sum amount at the commencement of the coverage period, then goes on to make the standard premium payments according to the agreed-upon schedule. An alternative approach is for the total amount of the extra premium to be divided among the series of standard payments, creating an additional cost that is due with each of those payments. With both solutions, the extra premium once again becomes due at the onset of a new coverage period, such as at the annual renewal date.
In some cases, the extra premium may be removed at a later date. This usually occurs when the insurance provider believes that the events covered by that extra charge are no longer relevant and pose no real risk. The premium may also be removed if the insured party indicates to the insurance provider that coverage for those extra events is no longer desired. At that point, the terms of the policy agreement between the two parties will be amended to reflect the new circumstances.