The Sunday Mail
In the most simple terms, the insurance premium is defined as the amount of money the insurance company is going to charge you for the insurance policy you are purchasing. The insurance premium is the cost of your insurance.
Here are the basics to help you understand what an insurance premium is and how it works.
What is the insurance premium?
Everyone knows insurance costs money, but a term that is often new when you first start buying insurance is “premium.” Typically, the premium is the amount paid by a person (or a business) for policies that provide auto, home, healthcare, or life insurance coverage.
How insurance premiums work
Insurance premiums usually have a base calculation, and then based on your personal information, location, and other information you will have discounts that are added to the base premium that reduces your cost.
In order to get preferred rates, or more competitive or cheaper insurance premiums, additional information is used. We outline these factors in greater detail in the section about some of the factors that determine the premium below.
The insurance premium is sometimes paid on an annual basis, semi-annual, or monthly basis. If the insurance company decides they want the insurance premium upfront, they may also require that.
This is often the case when a person has had their insurance policy cancelled for non-payment in the past.
The premium is the basis of your “insurance payment.”
How much is an insurance premium?
An insurance premium will vary depending on the type of coverage you are looking for, as well as the risk.
This is why it is always a good idea to shop for insurance or work with an insurance professional who can shop premiums with several insurance companies for you.
When people shop around for insurance, they may find different premiums charged for the cost of their insurance with different insurance companies and save a lot of money on insurance premiums, just by finding a company that is more interested in “writing the risk.”
What factors determine the premium?
An insurance premium is usually determined by four key factors:
- Type of coverage
Insurance companies offer different options when you purchase an insurance policy. The more coverage you get, or the more comprehensive coverage you choose, the higher your insurance premium may be.
For example, when looking at premiums for home insurance, if you purchase an open perils or all-risk coverage home insurance policy, it will be more expensive than a named perils home insurance policy that is only covering the basics.
- Amount of coverage and your insurance premium cost
Whether you are purchasing life insurance, car insurance, health insurance, or any other insurance, you will always pay more premium (more money) for higher amounts of coverage.
This can work in two ways, the first way is pretty straightforward, the second way is a little more complicated, but a good way to save on your insurance premiums:
Your amount of coverage can be altered by the dollar value you want on whatever you are insuring. For example, insuring a house for $250,000 will be different than insuring a house at $500,000. It’s pretty straightforward: the more dollar value that you want to insure, the more expensive the premium will be.
- Personal information of the insurance policy applicant
Your insurance history, where you live, and other factors of your life are used as part of the calculation to determine the insurance premium that will be charged. Every insurance company will use different rating criteria. —The Balance.
