What Does Insurance Premium Mean and How Does It Work?

Each one of us knows insurance costs, but the premium is the term that is unknown to many when you first go for buying insurance. There are thousands of insurance companies in a big city like London. Here are the basics that can help you understand how Insurance Companies take the term premium and how it works.

Insurance Premium:

Speaking generally, the insurance company is defined as the amount of time that the insurance company charges you for the insurance cover you buy. Simply, the insurance premium is the cost of your insurance.

Usually, insurance premiums have a base calculation and further is based on your personal information i.e. location, type of the policy, and other company determined information will have discounts that will be added to the base premium that are mentioned in great detail based on the factors that determine premium.

In rare cases, the insurance premium is paid on an annual basis, after 6-months, quarterly or as most companies today allow, monthly financing of the premium. If the insurance company asks you to pay the premium upfront, they may require it. This usually happens when a person has had their insurance policy canceled for non-payment in the past.

The premium is basically the basis of your insurance payment. However, depending on the local insurance laws and also the provider of your contract, an insurance premium is then taxed or sometimes services fees are added to the premium. You can get more information on your local regulations by the National Association of Insurance Commissioner’s Guidelines or your State Insurance Commissioners if you some confusion regarding fees or charges on your premium.

Remember that the charges above and beyond the cost of the policy are not the premium!

For instance, when a company charges issuance fees, extra charges may be added. The extra fees are not termed as premium, these costs would be defined separately if you look at your statement of account.

How Much Is an Insurance Premium?

Insurance cost may vary depending on the type of coverage you are looking for, so an insurance premium can be more or less expensive. Don’t ignore the risk factor that the insurers take seriously while offering you the premium for the policy.

So, it is always great to shop for insurance or work with an insurance premium having knowledge about the insurance companies can shop premiums with the best insurance companies for you.

People usually find different premiums charged, when they shop around for insurance, for the cost of their insurance with different insurance companies and can save a lot of money on insurance premiums by finding a company that offers you the most suitable option.

What Factors Determine the Premium?

An insurance premium is usually determined by four key factors;

How the Type of Coverage Affects Insurance Premiums?

There are various options offered by insurance companies when you go buy an insurance policy. The higher will be your insurance premium if you want to get more coverage or a more comprehensive policy. For instance, if you’re driving your vehicle as a Private hire taxi for transporting people, you have to purchase Private Car Insurance to drive your vehicle legally on the road. This insurance cover will keep you protected from damages and financial losses.

The Personal Information of the Insurance Policy Applicant

An Insurance company usually takes into account the insurance history, place where you live, age, and other factors of your life as a measure to determine the insurance premium that will be charged. However, every insurance company follows different criteria.

Some insurance companies take factors that depend on many personal factors i.e. from personal claims history to credit rating or car accident frequency and even occupation. These factors often result to give you discounts on an insurance policy premium.

For life insurance or health insurance, other factors specific to the person being insured will be considered as well.

Just like any business, insurance companies have target clients. To stay in the competitive market, companies determine what type of client profiles that want to attract is and create discounts policies or other such programs to help attract their target clients. For instance, an insurance company is interested to attract seniors or retirees as clients, while others are looking to attract young families or millennial to price their premiums.

Competition in the Insurance Industry and Target Area

If an insurance company aggressively wants to pursue a market segment, they may offer new rates to attract new customers. This is an interesting facet of insurance premium because it may drastically alter rates on a temporary basis or maybe on a permanent basis if the company becomes successful in getting good results in the market.

The Amount of Coverage Affects Your Insurance Premium

Whether you are purchasing Private Hire Car Insurance, Public hire Insurance, life insurance, health insurance or some other insurance you will always pay a higher premium for higher amounts of coverage.

There are two ways to work, the first is pretty straightforward, the 2nd way is a bit more complicated but a good way to save on your insurance premiums, for instance, whatever you’re insuring, your amount of coverage can be altered by the dollar value you want. For example, insuring a vehicle of high value will be different than insuring a vehicle of lower value. It is pretty straightforward i.e. the more dollar value that you want to insure, the more premium charges it will be.

For the same amount of coverage, you can pay less money if you take a policy with a higher deductible. However, in the case of health insurance or supplemental health policies or supplemental health policies, you cannot go for higher deductibles.

Who Decides the Insurance Premium?

Every insurance company is working with the people who have expertise in assessing the risk.

Actuaries, for instance, work for an insurance company to determine:

• the likelihood of a risk and perils
• the costs associated with the event of a disaster, or claim and then, actuaries have to create projections and guidelines based on this information

Why Do Insurance Premiums Go Up and Down?

In profitable years, insurance companies usually are not in favor to increase insurance premiums. While in less profitable years, if an insurance company gets more claims and losses than anticipated then they need to look at the insurance premium and revise the risk factors in what they are insuring. In such cases, premium rates may go up.

The post What Does Insurance Premium Mean and How Does It Work? appeared first on Tweak Your Biz.

source https://tweakyourbiz.com/business/business-resources/insurance-premium