when comparing policies with different net premiums adding a fixed amount will lead to the same proportion of expenses to premiums as long as expenses do vary by proportion to the premium determining which method to use depends on the general and legal expenses associated with the policy as they relate to commissions on the premium 
most policy calculations leave a margin for contingencies such as when the money made from investing the premiums turns out to be less than expected importance of net premiumnet premiums and gross premiums are helpful in figuring out how much an insurance company owes in taxes state insurance departments often tax insurance companies income tax laws however may allow companies to reduce their gross premium by figuring in expenses and unearned premiums insurers in the united kingdom use an annual premium equivalent ape calculation to determine their premium revenue for example if the state of ohio imposes a tax on gross premiums written by ohio insurance companies but the tax does not apply to amounts deducted for reinsurance it also won t apply to gross premiums not earned because the insurance company or policyholder canceled a policy before it expired who pays net premium policyholders pay the insurance premiums the pricing is based on them being either individuals or part of a group the premiums paid are the costs associated with purchasing insurance for an individual or business 