Insurance Premium

An insurance premium is how much you pay to get an insurance policy, be it for healthcare, home, auto or life insurance coverage. Premiums can be paid on a monthly, quarterly, semi-annual or annual basis and some can even be paid in full prior to starting the policy. Insurance premiums are calculated based on a number of factors, such as the type of policy you’re getting, your personal details and what coverage you’re seeking.

An insurance premium is the amount paid to providers to get insurance coverage. Depending on the provider, you can pay for your policy monthly, quarterly, semi-annually or annually. You can also choose to pay your premium in one lump sum. Failure to pay the premium upon the agreed due date can lead to the cancellation of your policy.

For instance, if you get a health insurance policy and make regular payments every quarter, you won’t have any problem when making a claim.

Insurance premiums fluctuate and often, no two are alike. This is because every insurer calculates them differently. For instance, you and your family member may have the same auto coverage, but they pay more for theirs than you do. This could be contributed to the difference between you, such as your assessed levels of risk, driving records or vehicle types. This is why it is helpful to shop around for coverage and compare policies and premiums of various providers.

Note, however, that a premium can increase or decrease if you adjust your coverage. For instance, an auto insurance policy with a $2,000 deductible will be cheaper on a monthly basis compared to one with a $500 deductible even though they have the same coverage. This also applies to other policy types.

Insurance premiums can vary based on a number of factors, such as the type of policy you get, the amount of coverage you need and your personal details. Every provider calculates their premiums differently and their considerations are often not privy to the public, but there are many criteria that all insurers consider.

Generally, insurance companies are responsible for determining your premium. Each company has their own unique method of calculating your premium, but they may have a base rate available based on certain details such as your age and location.

The base rate and other ways your insurance premium is determined is calculated by an actuary. They are responsible for determining the level of financial risk a person or group can pose based on statistics, their lifestyle, health and other factors. This way insurers can price your plan where they also make a profit.

Amongst all types of insurance policies, there are a few common factors that can impact your premiums.

Your unique situation can still determine whether your premiums are high or low and discounts are often available. Learn more about the different factors that can affect certain types of insurance policies below.

On average, a driver pays around $1,424 per year for a full coverage auto insurance policy with 100/300/100 in liability limits. However, auto insurance policies can be priced very differently based on your coverage, your personal details, your driving history and the make and model of your car.

For instance, car insurance for teens and young drivers is likely to be far more expensive compared to auto insurance for an average, 40-year-old driver with a good driving record.

The average life insurance premium varies based on term length and coverage amount. For example, a 10-year, $100,000 policy from Nationwide would cost $11.55 on average, but cost $15.75 for a 10-year, $500,000 policy. However, other factors like your age, gender and health history can still affect your premium.

The average cost of health insurance depends on your state. For instance, on average, Maryland has the most affordable health insurance at $338 per month, while West Virginia has the most expensive at $712 per month. Other considerations in your health insurance premium include your age group, family size and plan type.

While not legally required, home insurance is a necessity if you want to protect your most important asset. The average home insurance premium is $1,979 per year, but this can still change depending on your home’s location, its age, construction type and more. To find the most affordable home insurance policy, make sure to compare quotes and offers between insurers.

Renters insurance premiums stand at an average of $13 per month, or $159 per year, for a policy with $20,000 in personal property limits, $100,000 in liability coverage and a $500 deductible. Generally, it’s easy to find affordable renters insurance as the average is not at all that high. Additionally, renters insurance premiums are based on only a few factors: your location, credit score, coverage and security devices.

Travel insurance premiums often range between 4% and 8% of your trip’s total cost. However, your total cost depends on the type of travel insurance you get, the length of your trip, where you’re going, your age and more. Keep in mind that the best travel insurance isn’t always the most expensive, as it depends on where you’re going and what you’re doing.

On average, dog owners spend $225 per year for routine medical costs while cat owners spend $160. This can jump tremendously if there is an accident or other issue, which is why having pet insurance is so valuable. Health insurance for dogs can average $516 per year compared to $348 on average for cats. This price can differ, however, based on your level of coverage, add-ons and more.

Most insurance premiums aren’t fixed and can change based on a number of factors. Every time your policy ends, insurers can increase or decrease your premium based on assessed risk or if your coverage has changed. For instance, teen drivers' premiums can decrease once they have gained driving experience and are not assessed to be high risk.

Insurance premiums often increase as you age or as situations in your life change, which is something you should be able to financially account for. Understanding what can impact your insurance premiums can help you account for potential increases and seek discounts as needed. The following are some of the most common factors that can impact your premiums.

An insurance premium adjustment is a provision on your policy that allows the insurer to adjust your premium during or at the end of the policy. While this happens for a number of reasons, it often occurs during renewal when insurers reevaluate the current circumstances.

For example, if you’re renewing an auto insurance policy after being in an accident, you can expect it will be factored into your new premium. Accidents can increase your premiums by an average of 56.8% or $783. This means that if you originally paid $1,500 per year for auto insurance, you can expect to pay $2,283 after your renewal.

Your insurance policy includes a deductible, which is the amount you pay out of pocket before your insurance plan starts to pay for your claim. You can choose to adjust your deductible by paying a higher or lower amount for your insurance policy.

For example, a home insurance policy with a deductible of $250 will lead to a higher annual expense compared to having a deductible of $2,000 for the same coverage. In California, a policy with a $250 deductible costs $1,231 per year on average, while a policy with a $2,000 deductible can be up to $315 cheaper on average.

Below are a few frequently asked questions (FAQS) about insurance premiums to help you better understand what to look for and consider as you’re shopping for your policy.

Insurance premiums is a commonly used term across different insurance policies. Learn more about other insurance types in the following MoneyGeek guides.

• Car Insurance 101 Guide: What a Beginner Needs to Know About Car Insurance: Learn about the basics of car insurance such as what it covers, how much coverage you need and more.
• Health Insurance Glossary: Find out more about health insurance terms in this glossary resource to help increase your understanding of what policies cover.
• Types Liability Insurance, Where to Buy & Who Needs It: Liability insurance is often part of your basic insurance policy. Explore the different types of liability insurance across various policies to understand what you need.
• What is Term Life Insurance and How to Buy a Policy: Term life insurance is one of the most common and affordable types of life insurance purchased today. Learn more about who needs term life insurance, the different types and how to pick the right policy for you.
• What is Whole Life Insurance and How to Buy a Plan: Whole life insurance is meant to last exactly that — your whole life. Learn more about what whole life insurance is, its pros and cons, how to shop for it and more.