Surplus Lines Tax Guide for Lender-Placed Insurance by State

Force-placed insurance (also known as lender-placed insurance) is typically placed through the surplus lines market — insurance provided by non-admitted carriers that are not licensed in the state where the property is located. Because surplus lines carriers operate outside the standard admitted market, each state imposes taxes and fees on these policies.

What Are Surplus Lines Taxes?

Surplus lines taxes are state-imposed taxes on insurance premiums written by non-admitted (surplus lines) carriers. These taxes exist because:

• Non-admitted carriers do not pay premium taxes through the standard state insurance filing process
• States want to capture tax revenue from surplus lines business
• The taxes help fund state insurance regulatory activities and guarantee funds

Why Force-Placed Insurance Uses Surplus Lines

Force-placed insurance is placed through the surplus lines market because:

• Speed — Surplus lines carriers can bind coverage faster than admitted carriers, which is critical when protecting uninsured collateral
• Flexibility — Surplus lines carriers can write policies on properties that admitted carriers may decline (vacant, under renovation, high-risk locations)
• Availability — Not all admitted carriers offer force-placed insurance programs, especially for smaller lenders

The most well-known surplus lines market is Lloyd's of London, which provides the backing for FastFPI policies.

How Surplus Lines Taxes Are Calculated

Surplus lines taxes are calculated as a percentage of the gross premium. The total cost of a force-placed insurance policy includes:

Total Cost = Base Premium + Surplus Lines Tax + Stamping Fee + Other State Fees

Components

• Surplus lines tax — The primary tax, ranging from approximately 1% to 6% of premium depending on the state
• Stamping fee — Some states charge an additional fee collected by the surplus lines stamping office (the entity that reviews and processes surplus lines filings)
• Fire marshal tax — A few states impose a separate tax earmarked for fire protection services
• Municipal/city tax — Certain municipalities impose their own taxes on surplus lines premiums

Example Calculation

For a $500,000 coverage force-placed policy in a state with a 3% surplus lines tax and 0.25% stamping fee:

• Base premium: $2,500 (0.5% rate)
• Surplus lines tax: $75 (3% of $2,500)
• Stamping fee: $6.25 (0.25% of $2,500)
• Total annual cost: $2,581.25

Impact on Borrowers and Lenders

Surplus lines taxes are part of the total cost charged to the borrower. Lenders should ensure that:

• Tax calculations are accurate for the specific state where the property is located
• All applicable fees are included in the disclosure to the borrower
• Refund calculations on cancellation properly account for the tax-paid period vs. the refund period

Manual tax calculations across 50 states are complex and error-prone. FastFPI automatically calculates the correct surplus lines taxes, stamping fees, and other state-specific charges for every policy, ensuring accurate pricing and compliant disclosures.

Learn more about force-placed insurance pricing and how FastFPI handles surplus lines taxes automatically.

*Get started with FastFPI today.*