What Is Surplus Lines Tax? (Best solution)

What is Surplus Line Tax and why do I have to pay it? Surplus Line Tax is charged on all surplus line insurance transactions in the State of Illinois by authority of Section 445 of the Illinois Insurance Code (215 ILCS 5/445). The law also permits the producer to collect this tax from the insured.

  • The surplus lines tax is in addition to the premiums charged by the insurer. This tax is 3 percent of gross premiums and must be collected at the time of the delivery of the policy.

How do you explain surplus lines?

Surplus lines insurance protects against a financial risk that is too high for a regular insurance company to take on. Surplus line insurance can be used by companies or purchased individually. Unlike normal insurance, this insurance can be bought from an insurer not licensed in the insured’s state.

Who is responsible for paying surplus lines taxes?

SURPLUS LINES TAXES Most states charge an insurance premium tax to insurance companies licensed and “admitted” to do business within their borders. Generally speaking, those carriers then pass the cost of those taxes onto their policyholders by adding a comparable amount to their premiums.

What is an example of surplus lines insurance?

Surplus lines companies have the ability to react quicker to the demands of the marketplace, oftentimes resulting in a proving ground for new insurance products and underwriting concepts. Employment Practices Liability and Professional Liability (Errors and Omissions) Insurance are examples of such concepts.

What is Il surplus lines tax?

Surplus lines tax: 3.5%, payable by broker and may be passed on to the insured, plus stamping fee of 0.075%, and up to 1% fire marshal tax on property premium, depending on specific coverage (see schedule on Surplus Line Association website).

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Are surplus lines taxes refundable?

Even if the policy is flat/canceled (canceled as of the effective date of coverage) fees of this nature are not refunded. Taxes are usually a surplus lines tax (a tax charged by a general agent or insurance carrier when a less expensive policy is sold in a state where the carrier is not admitted to write business).

What does excess and surplus lines definition?

Simply put, Excess & Surplus lines (E&S) is a specialty market that insures things standard carriers won’t cover. The difficult or high-risk exposures in which E&S carriers specialize may range from a mobile home or a day care center to a multinational oil company. And anything in between.

Who regulates nonadmitted insurance?

Non-admitted insurance carriers are regulated by the state Surplus Lines offices, but regulation is far less invasive than for the admitted markets.

What does captive mean in insurance terms?

Issue: In its simplest form, a captive is a wholly owned subsidiary created to provide insurance to its non-insurance parent company (or companies). Captives are essentially a form of self-insurance whereby the insurer is owned wholly by the insured.

What are personal lines of insurance?

Personal lines insurance refers to any kind of insurance that covers individuals against loss that results from death, injury, or loss of property. These insurance lines generally protect people and their families from losses they couldn’t afford to cover on their own.

Why are surplus lines taxes charged?

What is Surplus Line Tax and why do I have to pay it? The surplus line producer is required by law to remit this tax to the state on all insurance contracts written under his or her license. The law also permits the producer to collect this tax from the insured.

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What does surplus mean in insurance?

A policyholder surplus is the assets of a policyholder-owned insurance company (also called a mutual insurance company) minus its liabilities. It gives an insurance company another source of funds, in addition to its reserves and reinsurance, in the event the company must pay a higher than expected amount of claims.

What portion of an insurance company’s premiums is taxed?

The state premium taxes are a percentage of the premiums paid by the insured. The maximum state premium tax is 4%, while the most common percentage is 2.5%.

What is the purpose of surplus lines insurance?

Often called the “safety valve” of the insurance industry, surplus lines insurers fill the need for coverage in the marketplace by insuring those risks that are declined by the standard underwriting and pricing processes of admitted insurance carriers.

What is fire marshal tax?

Fire Marshal Tax is charged on all applicable surplus line insurance transactions in the State of Illinois by authority of Section 445 of the Illinois Insurance Code (215 ILCS 5/445). The law also permits the producer to collect this tax from the insured.

What is a stamping fee in insurance?

What is a Stamping Fee and why do I have to pay it? This fee helps fund the operations of the Surplus Line Association of Illinois. The surplus line producer is required by law to remit this fee to the Association on all insurance contracts written under his or her license.

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