What type of premium is based on an estimate and can be subject to audit?

The type of premium that is based on an estimate and can be subject to audit is known as a deposit premium. Deposit premiums are initially calculated based on estimated exposures or risks. For example, in business insurance, a company may pay a deposit premium based on their estimated payroll or sales figures at the beginning of the policy period.

Throughout the policy period or at its conclusion, an audit may occur to determine the actual figures and risks incurred. Depending on the results of this audit, the premium may be adjusted – leading to either an additional charge or a refund. This ensures that the premium reflects the true level of risk that was ultimately determined, rather than simply an estimate made at the policy's inception. This practice is particularly common in liability and worker's compensation insurance, where the insured's actual operations can significantly impact premiums.

In contrast, other types of premiums mentioned do not depend on estimated values and audits in the same way. Base premiums are often fixed amounts not requiring adjustment based on actual values. Standard premiums, meanwhile, are typically predetermined and do not undergo the same kind of adjustment process. Final premiums are often settled after the initial period but are not usually based on an estimate in the same way as the deposit premium.