Why Do Insurance Rates Vary?

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Insurance rates vary due to the amount of risk involved for the insured person, building or business. Find out how actuaries determine insurance rates based on risk with information from a licensed insurance salesperson in this free video on insurance.

Part of the Video Series: Insurance Facts
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Video Transcript

Why do insurance rates vary? Insurance rates are all based on risk factors, and it's way beyond me. Actuaries determine insurance rates and they calculate it based on a wide variety of things that would be far too much to talk about here in this clip. But it could be things like the location of...if we're talking about a building, the location of the building, the type of construction of the building, the age of the building, whether any fire protection systems in the building exist. If we're talking about a risk on a person like automobile insurance liability, it could be the age of the driver, it could be the record of the driver. Does the driver have any previous tickets or accidents? All of these things are taken into account when determining insurance rates, and the riskier the...we call it a risk in the insurance business, but the riskier the risk that the insurance company is taking on, the higher the insurance rates are. So if you had a building that was made out of, you know, concrete block, fully sprinklered, and brand-new with a brand-new roof and a low likelihood that anything was going to happen to the building, the insurance rates are going to be a lot less expensive than an older building with no fire protection systems in place, with a leaky roof. And so insurance rates really are based on how risky the bet that the insurance company is taking on.

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