What is an insurance premium and how does it work?

An insurance premium is the amount of money an individual or business pays for an insurance policy. Essentially, it’s the price you pay to an insurance company to be covered under their insurance policies. As with other contracts, not paying your premium can result in your policy being canceled.

Insurance companies look at an insurance premium as income, because it is money paid to them for the insurance coverage they provide to the customer. However, these premiums can also be seen as a liability since the insurer must cover any insurance claims that are made against the policy.

An insurance provider determines your premium when you purchase and pay for insurance coverage. The price of each insurance premium differs and is determined based on several factors, including the level of risk they believe comes with insuring each customer. This risk assessment by an insurer is done because they are responsible for covering any claims that are made. Some customers are evaluated as a higher risk than others.

Other factors involved in determining the premium include the type of insurance policy you signed up for - auto insurance policy, life insurance policy, health insurance policy - your age, where you live, your claim or accident history, your medical history, and more.

For example, if you have been in multiple car accidents, your auto insurance policy may have a higher premium because you are seen as having a greater risk of making additional claims compared to someone who has a clean driving record.

An insurance premium is typically paid on a monthly, semi-annual or, annual basis. Again, this depends on the terms and conditions of the individual policy.

The price of the premium goes up as the risk increases, and the same is true for auto or car insurance. These policies are usually based on the driver's age, driving record, type of vehicle, claim history, and the amount of insurance coverage. You can look for an auto insurance premium calculator for more insight into the costs.

An experienced middle-aged driver in the countryside will likely have a lower insurance premium than a young teenager living in a densely populated city who just learned how to drive. Why? Again, it's relative to the risk that the insurance company takes on when promising to cover potential claims.

In general, insurance companies hire professionals known as insurance underwriters to determine their premiums - but what is insurance premium underwriting and what are insurance underwriters looking for?

As mentioned above, insurers look at many risk factors, including age, location, medical history, claim history and more. An insurance underwriter determines risk levels based on your information and decides whether you should be approved for a policy and how much your premium should be. This is known as underwriting.

An underwriter may find it necessary to increase your premium at the end of your insurance policy period if they believe your level of risk has increased. This could be based on the number of claims made during the period, changes in health and lifestyle, changes in the amount of insurance coverage, etc.

There are a few insider tips we would like to share with you to help you choose the insurance premium according to your needs.

• No claim bonus - Be careful and thoughtful while driving, at the end of every finished year of driving, your insurance premium will be available for insurance no claim bonus reward or even accumulated discounts or bonuses for careful drivers, who have finished the yearly period without making an insurance claim.
• Thoroughly choose your insurance premium - Remember, the most expensive is not always the best, as well as the smallest premiums might not cover your every request, choose the most suitable plans according to your needs and health.
• Choose premiums with countrywide insurance coverage - Whether it is health or car insurance premium, it is important to choose a company, which cooperates with various hospitals and clinics or car repair garages and service centers. The more options available for you, the easier it is to receive assistance and make an insurance claim
• Annual plans are preferred - It is important to mention that annually paid plans are more wallet-friendly than monthly plans, as annual payment in advance can secure the company's confidence that both parties will follow the insurance policy.
• Compare insurance plans - Always compare insurance premiums from different companies in order to get the best policy with complete benefits. Luckily it is easy to do online!