Home Insurance News What is an insurance premium? Definition and cost, explained – INSIDER

What is an insurance premium? Definition and cost, explained – INSIDER

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  • An insurance premium is the monthly or annual payment you make to an insurance company to keep your policy active.
  • Premiums are required for every type of insurance, including health, disability, auto, renters, homeowners, and life.
  • Though it’s different for each type of insurance, the cost of your premium is usually based on a few different factors, including your age, location, type of coverage, and past insurance claims.
  • Generally, the more risk you pose to the insurance company, the higher your premium will be.
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In order to keep your car, home, apartment, or health insured, you need to pay your monthly premium.

An insurance premium is a monthly or annual payment made to an insurance company that keeps your policy active. Health insurance, life insurance, auto insurance, disability insurance, homeowners insurance, and renters insurance all require the policyholder to pay a premium to continue receiving coverage.

Unless you’re buying term life insurance, which locks in a monthly rate for the full policy term, your premium amount usually isn’t set in stone. Most policies last for six months or a year, at which point the insurance company will reevaluate your risk and may change your rate.

While some factors that determine your premium are within your control, including the number of claims you file, many factors — like your age and location — are not. During the underwriting process, the insurance company will evaluate your current risk and set a premium amount and the policy will be activated upon your first payment.

Car insurance premiums

Car insurance premiums are incredibly variable. In addition to being determined by your age, driving history, and location, your premium can go up or down if you’re involved in any car accidents or are cited for any traffic violations, like speeding, according to insurance-comparison site Policygenius.

A typical policy period for car insurance lasts either six months or a year. The premium amount listed on your agreement with the insurer may reflect the total for the coverage period, even though you’ll be making monthly payments. When the policy period is up, the insurer will reevaluate your driving record and other factors and may set a new premium.

For every six months of accident-free driving, you can earn a check from Allstate Auto »

Life insurance premiums

As previously mentioned, term life insurance premiums are locked in when the policy is signed. How much you pay is based on how much coverage you want, the type of policy you get, and how much risk you pose. Your risk is mostly determined by age, weight, nicotine use, driving history, health history, and your job. Your current health is evaluated during the medical exam, which will typically require blood and urine tests.

The average person can expect to pay between $300 to $400 a year for life insurance, according to Policygenius, but it really depends on your situation.

Compare life insurance policies to find the best fit for you with Policygenius »

Health insurance premiums

When it comes to health insurance, your monthly premium isn’t the only payment you have to make for health coverage. In fact, usually the lower your premium, the more you’ll have to pay out-of-pocket for doctor’s visits, prescriptions, and other medical costs. Health insurance policies are renewed on an annual basis, so your premium can change from year to year.

Homeowners insurance premiums

Premiums for homeowners insurance are fairly straightforward, although they’re often determined by several factors outside of the homeowner’s control. According to Policygenius, an insurer will consider your home’s location, as well as the size, age, and build of the home. Houses in wildfire, tornado, or hurricane prone areas will almost always command higher insurance premiums.

There’s another factor that goes into homeowners insurance premiums called your insurance score, which you do have some control over. The insurance score represents how likely you are to file a claim based on your credit score, claims history, and whether your home is outfitted with safety precautions like fire alarms, security systems, or weather protections, explains Policygenius.

Compare homeowners insurance policies to find the best fit for you with Policygenius »

Renters insurance premiums

Renters insurance is by and large the most affordable type of insurance. Your premium is based on your coverage amount; your deductible, or what you are willing to pay out-of-pocket before insurance kicks in; your credit score; your location; and the value of the stuff you want to protect.

Most people pay between $15 and $20 a month for coverage amounts into the six figures, according to Policygenius.

Compare renters insurance policies to find the best fit for you with Policygenius »

Disability insurance premiums

Disability insurance is income protection to cover the chance you’ll experience a disability that keeps you from work longer than 90 days, according to Policygenius. The premium for long-term disability insurance can be anywhere from 1% to 3% of your salary, starting around $25 a month and topping out around $500 a month.

Age, location, occupation, coverage amount, benefit period, waiting period, and health all contribute to the premium.

Compare disability insurance policies to find the best fit for you with Policygenius »

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