What Are Insurance Premiums and What Are They For?Sep 23 2022
In insurance, there are many phrases and terms that get thrown around that may be confusing to people unfamiliar with the industry. To help, we’ve put together a brief guide on insurance premiums and what they’re for so you can be more informed while shopping for an insurance policy.
What Are Insurance Premiums?
You have probably heard the term “insurance premiums” get thrown around a lot—but what are they, and what are they for? In essence, insurance premiums are the amount the policy owner pays for their insurance, whether home, auto, life, or another policy.
Insurance premiums can be paid monthly, semi-annually, or annually but are most often a monthly payment. If, for example, you spend $200 a month for a policy, your yearly insurance premium would be $2,400.
What Determines an Insurance Premium?
So, an insurance premium is a term for how much you pay for the insurance policy, but what determines how high or low your premium is?
Type of Coverage
There are obviously many different types of insurance and coverage—some are inherently more expensive and have higher premiums than others. For example, a standard auto insurance policy will have different insurance premiums than a professional liability policy from a malpractice insurance agency.
Amount of Coverage
What the policy covers significantly influences the insurance premiums along with the coverage type. The more extensive and comprehensive the coverage for your policy, the more you’ll have to pay in insurance premiums.
Plus, the value of what you’re insuring affects the premiums. Insuring a $200,000 house will cost less in premiums than a $500,000 home.
A deductible is an amount the policyholder pays out-of-pocket toward a covered claim. For example, even if your professional liability policy covers a malpractice litigation claim, you’ll still be on the hook to pay the deductible.
Most policies offer a range of deductibles for a policy, and, typically, the higher you pay, the lower the insurance premiums you can get. It’s a trade-off between how expensive a one-time payment is versus a series of payments.
Personal Info & Background
Of course, your background and info will also greatly influence how high your insurance premiums are. The greater the insurance company determines the risk of insuring you or your property, the higher your premiums will be.
If, for instance, you’ve been in multiple car accidents in the past couple of years, your insurance premiums will be higher than someone with a spotless record.
Now you understand a little more about insurance policies and insurance premiums. If you’d like to learn more about insurance or malpractice insurance, don’t hesitate to contact the experts at Baxter & Associates!