Insurance Costs: Premiums Explained
When you fill out an online insurance application, you will see quotes that reflect the cost of insurance, or premiums. Here is an explanation of what exactly a premium is and what factors influence it.
About Premiums
A premium is basically a mathematical reflection of the amount of risk an insurer takes in issuing a policy to you. Your online insurance application quotes will reflect this number. To calculate the claims risk of a person, insurance carriers have developed complex formulas, or algorithms. Each insurer has a unique algorithm, but commonalities in the formulas exist across the industry. When insurers place a number on the claims risk you pose, it's based on a mountain of data that examines trends in claims. These trends tell insurers that men are more likely to speed and get into accidents than women, for example.
Factors Affecting Premiums
The factors that will influence the premiums you pay will depend on the type of policy you specified on your online insurance application. Here are some common factors for the main types of insurance:
- Health insurance factors
- Age & occupation
- Family history of certain diseases
- Current medical conditions
- Deductible and co-pay amounts
- Previous denial of coverage and previous hospitalizations
- Pregnancy
- Homeowners insurance factors
- Credit history and claims history
- Deductibles
- Size of home & surrounding buildings
- Risk for natural disasters
- Crime rates
- Materials of which the home is made
- Life insurance factors
- Age, occupation, & gender
- Amount of coverage (size of death benefit)
- Medical history & present medical conditions
- Type of policy (permanent vs. term)
- Lifestyle (smoking, dangerous hobbies, etc.)
- Auto insurance factors
- Age, gender, educational attainment, & marital status
- Type of vehicle
- Credit history
- Driving record
- Distance driven
- Deductibles
- Where you live
If you have any questions, please visit our FAQ page.
