Introduction
Insurance premium is the amount of money that you pay to the insurance company periodically in order to get coverage for a specific risk. The amount is calculated as a percentage of the sum insured or as a flat rate depending on the type of policy you are taking. Insurance companies take many things into consideration when they calculate an insurance premium for a certain risk. Actuaries are the experts in this area--that is what they are employed to do by insurance companies. Some of the things that the insurer takes into account include the following:
History
The sum insured that you choose for your policy will determine the insurance premium that you are going to pay at the end of the day. A higher sum insured means a higher insurance premium; the reverse is also true for a lower sum insured. This applies to any insurance policy, whether it’s a car insurance policy or a life insurance policy. Another factor that the insurance companies consider when rating policies is the magnitude of the risk being insured. If the chances of a risk happening are higher, you will pay a higher insurance premium. The reverse is also true for low risks. For example an alcoholic young driver is more likely going to pay more premiums than an older driver who doesn’t drink. This is because the young driver is more risky, his chances of getting in an accident are high because of his inexperience and drinking habits.
Features
The insurance premium that you pay is also determined by the type of policy you are purchasing. If you are buying life insurance for example, the premiums that you pay for a term insurance policy are different from the insurance premium that you pay for whole life insurance. This is also the same with car insurance policies; the insurance premium that you pay for a comprehensive insurance policy are different from those that you pay for a third party insurance. In both cases, the insurance premium is determined by the extent of cover. The more cover you buy, the more insurance premium you pay. It’s as simple as that. The insurance premium that you pay for a contents home insurance cover is less than what you would pay for a combined policy of contents and house owners.
Tips and comments
As a policyholder, you can choose the way you want to pay your insurance premiums; it can be monthly, quarterly, or even annually. Auto policies and property insurance policies are short term in nature; you normally pay the premium every month. For life insurance policies, although they are long term in nature, you also pay every month. If you are not comfortable paying premiums every month, you can always talk to your service provider and agree on an arrangement you are both comfortable with. Your cover will stop when you stop paying the insurance premium, so an insurance premium is the price that you pay for the coverage that you get from an insurance company. These are some of the things that your insurance company takes into account when they rate your insurance policy, whether it’s a life policy or a property insurance policy.
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