What Is an Insurance Premium?
Created by FindLaw's team of legal writers and editors | Last reviewed June 02, 2017
The security and peace of mind that come with having an insurance policy can be significant. But of course, every benefit comes at a price. For insurance, that price is the premium. A premium is the money you pay the insurance company in exchange for the coverage it provides according to the terms of the insurance policy. The article below discusses insurance premiums and the role they play in your insurance policy.
How Insurance Premiums Are Calculated
There are many factors that go into calculating what your premium will be for a given insurance policy. The key component is your risk factor – how likely you are to file a claim for insurance benefits. For example, if you have a history of car accidents and speeding tickets, you’re going to have higher car insurance premiums because you’re more likely to get in an accident and file a claim. Other factors can include the amount of coverage you need, your age, gender, where you live, and the size of your deductible.
Insurance companies also try to diversify their pool of insured people among low- and high-risk individuals. This helps cover the costs of the high-risk segment who tend to use their insurance more. If the insurance company isn’t able to insure as many low-risk individuals, the premiums are even higher for those high-risk insureds. For example, it’s difficult to sell earthquake insurance to low-risk residents of Maine because they aren’t likely to need it. Therefore, earthquake insurance premiums are even costlier for high-risk people living along an active fault line in California.
Another significant way most insurance companies calculate your risk factor is by examining your credit score to arrive at an insurance score. They look at things like your outstanding debt, monthly credit card account balance, and payment history. Having a bad credit score increases the likelihood that you’ll be paying higher insurance premiums.
Insurance Premium Laws
Each state regulates the insurance industry operating within its borders. In some states, insurance companies must obtain prior approval for the premium rates they set for their insurance products. For example, many states require prior approval for health insurance rates, while approval is not typically required for life insurance rates.
States also set rules that determine when and how an insurance company may cancel your policy. These laws generally allow your insurance company to cancel your policy if you fail to pay your insurance premiums, but different states have different requirements for how much notice the company must give you before terminating the policy. For example, many states require just ten days’ notice before your auto policy can be cancelled for non-payment.
Insurance Company Responsibilities
In exchange for all those premium payments you make, the insurance company is obligated to abide by the terms of your insurance policy and provide the applicable benefits. This can include life insurance proceeds, paying for medical bills, defending you in a lawsuit, and many other types of benefits.
If an insurance company fails to pay on a legitimate claim or otherwise acts unfairly, they may be guilty of breaching your insurance contract or acting in bad faith. Additionally, using race or religion as factors for calculating your premiums is illegal. To address certain issues, you can try to work out an agreement with the company. In other situations, in might be necessary to file a lawsuit against them, or lodge a complaint with your state’s insurance department.
Having Issues with Your Insurance Premiums? Get Professional Help
Insurance laws are only becoming more numerous and more confusing, especially since there are so many different types of insurance out there. The last thing you need is to have issues with your insurance company and coverage after spending so much on those regular premium payments. Get help with your premium and other insurance issues by contacting an experience, local insurance attorney today.
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