Insurance is a security net- the safeguard against threats like the uncertainty of money and calamities. To have that peace of mind, you pay something in exchange.
Such a thing is referred to as an insurance premium. Be it a health insurance policy, a car insurance policy or a life insurance policy, premiums form the core of insurance.
In this guide, we are going to have a down-to-the-nitty-gritty break of what premium in insurance is, the various types of insurance premiums, factors that affect the price and calculating insurance premiums. It is time to get rid of the confusion and allow you to make informed insurance decisions.
What Defines a Premium in Insurance?
Simply described, a premium in insurance is money which you pay to an insurance organization in order to receive insurance. The payment may be given once a month, quarterly, half-yearly or yearly as specified by the policy.
Consider it as a pass to have financial security. Certain risks are outlined in your policy, and as long as you continue paying the premiums, your insurer is supposed to take care of you accordingly.
When something goes wrong, say a medical emergency, a car collision, or the destruction of some property, the insurance company will come in and foot the bills up to the policy limit.
Failure to bear the premium makes your cover invalid, and you are denied the cover.
Insurance Premium Types
The various types of insurance are being offered.
1. Premiums of Life Insurance
These are paid to insure you against life. In case of your death in the course of a policy, the insurer will pay a death benefit to the beneficiaries.
2. Health Insurance Costs
These include health expenses such as hospital bills, operations and physician examinations. Premiums tend to be paid monthly, and their levels depend on the cover applied, the age and the health history.
3. Auto Insurance Premiums
In the case of cars, auto insurance is paid at a premium in case of accident, theft, or damage. This is based on the type of car, age of the driver and driving record.
4. Home Insurance
In home insurance, these save your home and other possessions against fire damage, theft, floods and other dangers. The cost of premiums varies according to the area, size of the property and the risk.
5. Premiums of Travel Insurance
In travel insurance, this is paid in advance on a trip without any reimbursement covering medical emergencies, lost luggage or trip cancellation. It is normally a single premium payment that offers short-term cover.
Insurance Premium Affecting Factors
Not all people get equal premiums, and rightly so. To calculate the amount of risk they are accepting by insuring you, insurers will go through a number of factors. The greater the risk, the greater the premium. The main factors which affect your premium are the following:
1. Age
Younger citizens tend to be charged less for life or health insurance, whereas older people may be in danger of being charged more, as they are more subject to ill health.
2. Gender
Statistically, men and women can vary in life expectancy or the risk they are exposed to this affects the premium, particularly in life insurance.
3. Health Condition
Health and life insurance largely depend on your current health, past health history, as well as the quality of life (habits such as smoking).
4. Occupation
A potentially hazardous job or a high-risk job may incur increased premiums, e.g. firefighters or construction workers.
5. Coverage Amount
The greater the coverage you require, the higher the premium. Greater payments are made up front when you desire to get a higher payout in the event of a claim.
6. Location
In the case of home and auto insurance, location is important. Locations that are more likely to incur theft, floods, or traffic accidents normally have higher charges.
7. Driving Record
In the event that you are striving to take auto insurance, your driving record will play a key role. The decrease in the number of accidents and traffic infringements minimizes premiums.
8. Claims History
In the event that you have filed one or more insurance claims in the past, then your insurance cover providers can quote you a higher premium, as these policyholders are considered high-risk insurance holders.
How is Premium in Insurance Calculated?
The insurance companies do not make random guesses as regards determining your premium. They have a process, which is elaborate and referred to as underwriting, whereby they assess the risk of insuring you according to all the above-discussed factors.
Let us examine more closely how the calculation is done:
1. Risk Assessment
Insurers evaluate the probability of making a claim. As an illustration, a person with a pre-existing condition would have better chances of affording coverage.
2. Statistical Data
Insurance mathematicians (actuaries) consult old data and mortality tables, rates of accidents and changes in health trends to calculate how probable an event is to occur.
3. Coverage Price
This involves the possible amount that the insurer can suffer on claims, together with administrative expenses.
4. Profit Margin
Insurance businesses are insurance companies. They put some margin into it so that they can make some profit after paying claims and expenses.
5. The add-ons
There are optional extras (additional benefits or riders, e.g. critical illness, maternity cover, etc.) which increase the price of your base policy.
Example:
In case a health insurance business regards you as a candidate with a low risk, you may pay PKR 5,000 monthly. However, if you are older and have a bad health record, the same plan will charge you PKR 10,000, considering your health history.
Conclusion: Make the Correct Policy Decision
Insurance is not simply about paying the premiums, but it is the key to your inner comfort. Getting to know some background about them, how they are, how they operate and what influences them enables you to make the right decisions that save your health, possessions and those that you love.
In case you need a reliable insurance company in Pakistan with visible premiums and reliable coverage services, IGI Insurance has a number of policies that can suit your demands.
Make the smart decision today so that you will have a secure tomorrow.
