Which type of insurance company must charge a premium tax on policies sold?

A surplus lines company must charge a premium tax on the policies it sells due to the regulatory framework that governs it. Surplus lines insurers are generally not licensed in the state where the insurance is sold but are allowed to operate under certain conditions when the coverage is not available from admitted insurers. As part of this niche market, they often cater to high-risk or unique insurance needs that standard insurers cannot underwrite.

Because they are not considered admitted insurers within a state, they are subject to specific state regulations, including the requirement to pay premium taxes. This ensures that states still collect revenue from these transactions, despite the surplus lines properties falling outside the traditional admitted market structure.

In contrast, admitted insurers are those that are licensed and regulated by the state, and they must follow the state's approved rates and terms. Foreign insurers, while they operate in multiple states, might not necessarily have the same obligations concerning premium taxes in every state. Mutual insurers, being owned by policyholders, follow a similar regulatory structure to admitted insurers and also have different obligations. Thus, the nature of surplus lines companies in relation to state laws distinctly requires them to charge a premium tax on their policies.