Guaranteed Cost

A guaranteed cost plan is considered a traditional type of workers compensation insurance. In this type of plan, the billed premium is determined at the beginning of the policy and is not subject to adjustment as a result of the loss experience. The guaranteed cost plan requires the employer to pay the full premium. In a guaranteed cost policy, the underwriter bases the premium on a fixed or adjustable prospective basis or on a specified rating basis. The final cost of the policy for a given year is based on the claims/losses from the prior two to three years which are combined and used to calculate the experience modification factor. Once potential exposures are determined for the upcoming policy year and a payroll audit performed, the premium is set. The premium rate is guaranteed not to be adjusted during the policy period even if losses are higher than expected that year.