What is the purpose of a deposit adjustment in this context?

• A. To adjust the security deposit to secure future liabilities
• B. To adjust payroll
• C. To adjust coverage limits
• D. To adjust the premium

Answer: (A)

A deposit adjustment is about keeping the security deposit aligned with the plan’s expected future liabilities. In a self-insurance plan, the employer or insured party posts a security deposit as collateral to cover anticipated losses. When the insurer reassesses risk at renewal or after audits—due to changes in exposure like payroll or workforce size—the deposit amount may be increased or decreased so the collateral still adequately covers future liabilities. This isn’t about changing payroll directly, adjusting coverage limits, or altering the premium; it’s adjusting the collateral to reflect the insurer’s estimated future claims costs.