Insurance: What You Should Know About Premium Tax
As you try to navigate the choppy waters of the insurance world, the last thing you want to do is worry about the insurance premium tax. In fact, chances are fairly high that you've never even heard of this thing! What does it have to do with your personal insurance policy? Does it affect your coverage or rates? Should it be something that you investigate before committing to a particular policy?
Though laws governing the insurance premium tax vary from state to state, this article is designed to inform you of the basic facts regarding this important matter and how it affects you. Please remember, however, that this article is just a guideline; you should check your state laws and speak with an agent from your particular insurance company if you have any questions.
What is an Insurance Premium Tax?
What is an insurance premium tax? An insurance premium tax is a tax upon insurers, both domestic and foreign, for the privilege of engaging in the business of providing insurance. The insurance premium task can be viewed as the insurance company's equivalent of the individual's income tax. In other words, the tax is calculated on the amount of premiums received or receivable by the insurance company. As mentioned previously, the percentages vary by state, but generally the tax rate for premiums on life, health, and accident insurance is around 2%, the tax rate for premiums on property and automobile insurance is around 4.4%, and the tax rate on all other contracts of insurance is around 4%.
The insurance premium tax doesn't really affect the individual policy holder in a drastic way. Obviously, the more successful an insurance company, the higher their insurance premium tax. However, the company will probably not raise your rates to cover their expenses since this will only make their tax higher in the following year. If you can find a list of the taxes paid by particular insurance companies, this might actually prove beneficial, as it will let you know which companies are most successful and, possibly, have the happiest clients. Remember not to overlook the merits of less lucrative companies, though.
If the insurance premium tax is still interesting to you, there is a wealth of information out there. After all, the more informed you are about insurance in general, the more likely you are to end up with a good policy for an affordable price. Good luck!
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