When you’re shopping for insurance, there’s a lot of jargon thrown at you. It can be a little frustrating to navigate if you don’t know what it means and what it’s meant for. It’s important to know what you’re paying for and why.
You’ve probably heard the term “premium” anytime you’ve shopped around for insurance. But do you know why you pay the premiums you do? Today, we’re going to share everything you need to know about insurance premiums, and what’s going to affect yours.
An insurance premium is the monthly or annual payment you make on a policy.
Every type of insurance you buy uses premiums. Depending on the type of insurance and the amount of coverage, a premium can change. Therefore, different risks you pose and how much coverage you want determine your premiums.
How Does a Premium Work?
Your insurance premium will cover all liabilities and risks in your chosen policy. This also means that your premium isn’t always set in stone. It can actually change if you start to pose more or less of a threat to your policy.
Generally, you’ll want to renew your policy every 6 month to a year. Depending on who your insurance provider is, you can either pay your premium in instalments or in a lump sum before your coverage begins.
Your insurance provider will use your premium to cover all your liabilities. Your premium is also used to help generate higher returns, which is how insurance prices can change.
This amount will become a liquid asset to your insurance provider to help pay for any claims. The less claims you make, the more your liquid assets will grow. So remember when you shop for insurance, your premium will be affected by:
- The type of insurance plan and policy you choose
- How much coverage you want or need to get
- Personal factors and risks associated with your coverage
- Different companies that can offer more competitive programs for your coverage
For instance, some insurance providers will specialize in covering young drivers. If you’re a young driver, your insurance premium will be relatively high no matter which provider you choose. However, you can choose the right provider that specializes in young drivers. Therefore, choosing a provider with a young driver’s program, may have accident forgiveness included in your premium.
What Determines Your Premium Cost?
As we mentioned, your risks and personal information will determine how much you end up paying. Therefore, the “associated risks” will change depending on what you’re trying to insure.
Remember that your credit score and claims history will also affect what kind of premium you may need to pay.
Auto Insurance
For car and motorcycle insurance, your premium will change based on your age, driving history, location, the vehicle you drive, and the claims you’ve made. They can go up or down, and can change with something as little as a speeding ticket. There’s lots of ways you can save on your auto insurance.
To read more about it, check out our pages on car and motorcycle insurance.
Life Insurance
The risks associated with life insurance are determined by your age, general health, health history, and how much you make. When being assessed for a life insurance premium, you may be required to complete a physical exam.
To learn more about life insurance, and what else can affect it, check out our life insurance page.
Health Insurance
Most employers will offer health insurance coverage in their employee benefits package. What’s important to remember in your health insurance premium is that the lower premium you have, the more you’ll have to pay in out-of-pocket expenses and deductibles.
To learn more about your different health insurance options, check out our page on health insurance.
Homeowners Insurance
Your homeowners premium will change depending on how old your home’s age, location, size, and history. What’s important to remember is that even if you have never made claims on your home, if previous tenants have, your premium will be affected. However, you can lower your premium costs by outfitting your home with different safety precautions and devices.
To learn more about how you can save on home insurance, check out our page.
Renters Insurance
Renters insurance is assessed similarly to home insurance. You have a little more coverage options with renters insurance because you’re mostly protecting your property in the home. Risks to the home itself will require homeowners insurance.
Be sure to understand what renters insurance can and cannot cover, as you have lots of options for the amount you want covered.
Disability Insurance
Premiums for disability insurance are determined similarly to how life and health insurance is assessed for risks. Your income is also a large factor in your premium because it needs to cover at least 60 percent of your salary. This means that your disability insurance can be anywhere from 1 to 3 percent of what you make.
There’s lots of reasons why you should consider disability insurance. Speak to your employer about if disability coverage comes in your employee benefits.
What Are You Paying For Your Insurance Premium?
An insurance provider will change a premium as you begin to pose more or less of a threat to your liquid assets. A changing premium doesn’t mean that your insurance company wants to increase your payments, they want to protect your liquid assets.
If you begin to pose more of a threat to your policy, you need to secure yourself more with higher premium payments. Luckily, the same goes for if you start to pose less of a threat to your policy.
To find out how to save on your insurance, call one of QuotePurple partners to see what you can do.