An insurance premium is the price a person or business (the insured) pays for an insurance policy. Insurance premiums are paid for all types of insurance: healthcare, rental, accident, auto, home, life, and more.
What is Insurance Premium?
The insurance company stipulates that an individual or business periodically pay them a specific amount of money as premium for the availing and maintenance of their insurance policy and coverage. Insurance companies consider many factors while determining the premiums, particularly in case of life insurance. These include the chances of claims being made by the policyholder, medical conditions, smoking and other lifestyle habits, area of residence, nature of employment and so on.
The premium is the price charged by the insurer, an insurance company, for providing insurance coverage.
Premiums are revenue or a source of income for the insurance company. Premiums can be due monthly, quarterly, annually, or on a special timetable that the insured agrees to. Failure to pay the premium may result in the cancellation of the policy and loss of coverage.
What does premium mean in insurance?
The amount you pay for your health insurance every month. In addition to your premium, you usually have to pay other costs for your health care, including a deductible, copayments, and coinsurance. If you have a Marketplace health plan, you may be able to lower your costs with a premium tax credit.
What is an insurance premium example?
The amount of the premium is determined by the kind of insurance coverage you are buying and the risks of insuring you.
For example, a car insurance premium will depend on where you live, your driving habits and record, the car and its safety features, and any other factors that affect the insurer’s risk of insuring your car. Location and use are the biggest factors affecting car insurance premiums.
If your car insurance premium is $800 per year, you must pay your insurer $800 per year to have the insurance.
The features of your coverage, such as the deductible and limits on your coverage, will also affect the premium.
A premium is the price of the insurance you’ve chosen, charged by your insurance company.
How is the Insurance Premium calculated?
While you can always look for a good insurance premium calculator to work out the premiums, the calculation procedure also depends on several factors as listed below:
- Area of residence
- Nature of employment
- Medical ailments and history
- Smoking and other lifestyle habits
- Likelihood of claims being made by the person insured
- Height and Weight
- Marital status and dependents
- Hobbies with high risks
- Global travel history
Insurance companies also take into account the mortality cost, i.e. the sum assured or the minimum sum payable by the insurance company in the event of death of the policy holder. This is also worked out through assessing the factors mentioned above. The operational costs of insurance companies like the rental of office space, salaries of employees, commissions of agents, etc. also determine insurance premiums. Lastly, the interest earned on invested premiums is also taken into account before the premium calculation.
As can be seen, premium calculation is a multi-layered process, depending on several factors and varying from one person or policy to another. You should always use a calculator to determine the insurance premium payable on your life insurance policy prior to choosing the same or renewing it every year. These calculators are available on the websites of most insurers.
Insurance Premium vs. Deductible
A premium is the price of the insurance you’ve chosen, charged by your insurance company. A deductible is an amount you have to pay before your insurance company initiates coverage.
For example, if your car insurance premium is $800 per year, you must pay your insurer $800 per year to have the insurance. if your car insurance has a $100 deductible on collision, and you have collision damage of $500, you will have to pay $100 of the damage and your insurer covers the remaining $400.
Premiums apply to all insurance policies. Deductibles vary by plan—some plans have no deductible—though those often come at a higher premium. Deductibles are common in health insurance and auto insurance plans.