What Is the Premium of an Insurance Policy?
Insurance premiums are payments made by the policy owner to the insurance company in exchange for coverage. There are several factors that determine the amount charged by insurers such as the policy type. Based on the information provided, an applicant's premium amounts may be lower or higher than the standard rates usually charged by the insurer.
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Types
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There are many ways for policy owners to make premium payments to the insurer. Payments can be made via check, money order, cash and credit or debit card. Premium payments can be made online, delivered by mail, in person or by telephone. The mode of payment can be annual, semiannual, quarterly or monthly. However, policy owners may be hit with extra fees for making frequent premium payments and for paying by mail or telephone.
Considerations
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Insurers consider many factors when determining an applicant's premium. For insurance policies covering property such as homes and cars, the value of the property and the coverage amount are important factors. Business iInsurance companies look at the type of business, sales, payroll, location and many other factors. Premiums for health and life insurance policies are decided by the applicant's age, gender, health, hobbies, occupation, marital status and coverage amounts.
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Underwriters
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Underwriters decide whether to accpt applications for insurance and how much to charge for it by analyzing the information submitted on an insurance application. To assess the applicant's level of risk, underwriters use instruments such as actuary tables and computer systems to make accurate determinations. The underwriter's decisions directly affect the success and failure of an insurance company. Insurers can lose money if underwriters grant policies to riskier applicants.
Misconceptions
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Although the applicant's information is a major part of determining the cost of premiums, there are other factors that will affect the prices of certain types of insurance policies. For instance, auto policy owners can lower their premiums by increasing their deductible amount. This is also true for health insurance policy owners as the amount of their out of pocket expenses such as deductibles, coinsurances and co-pays will increase or decrease premium costs.
Warning
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Depending on the information submitted on the application, the insurance company may determine that the risk of providing coverage is higher than normal and may either raise premium or deny insurance altogether. Policy owners who fail to make premium payments are at risk of having their insurance policy lapse or canceled by the insurer.
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References
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