Wednesday 06 November 2019

How insurance premiums are determined

Author: Cambridge Web Marketing

We all know that to be covered by an insurance policy we need to make a payment, known as the insurance premium. Whilst some insurances are a legal requirement, such as car insurance, others are not. But what can be a mystery is how the insurance premium is calculated. See more below.

How much is an insurance premium?

For all insurance policies, how much or how little a company charges you in terms of an insurance premium depends largely on the cover being offered. What is also factored in is risk. In other words, assessing all factors that determine the likelihood of whether you will make a claim or not.

In the case or critical illness insurance, the insurance company will consider your current state of health as well as your lifestyle in determining risk. The level of risk contributes to the cost of insurance cover.

What other factors determine the insurance premium?

There are usually four key factors that play a part in how insurance premiums are determined:

1. The type of insurance cover

Insurance companies will offer different options for different insurance policies. The more comprehensive the cover, the more the premium. With home insurance, for example, adding accidental damage to the policy increases the premium.

2. Higher value coverage

This applies to insurance such as life insurance, car insurance and health insurance, as well as insurance on property. There are two ways in which this works. When it comes to the value of a property, it is more likely you’ll pay more on a property valued at half a million than one valued at £250,000. It will also depend on the area, as well as other factors.

Secondly, the premium level will also be determined by how much you pay towards the cost of the policy. Known as policy excess, if you agree to pay £200 towards the cost of repairs your premium will be lower than if you set a lower excess of just £50.

3. Competition between insurers

There is no doubt that shopping around for insurance will save you money on insurance premiums. This is true for all insurance products but for car insurance @thisismoney suggest strongly that this is a reliable way of reducing premiums. In fact, they say, haggling over insurance premiums can reduce them substantially, as well as being aware of what other factors contribute to lower insurance.

4. Personal factors

Most insurance premiums are also affected by personal factors, many of which can’t be helped – not in the short term at least. Your insurance history, lifestyle, where you live, and so on all affect insurance premiums. In some cases, your credit history could also be adversely affecting how much you pay, as well as who is willing to offer you insurance.

We work with clients to find the best insurance at the right premiums for them across a range of insurance products including home insurance, critical illness cover, and landlord insurance to name just three. Why not contact us to find out more?

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Written by: Cambridge Web Marketing