{"id":352625,"date":"2017-06-02T15:50:58","date_gmt":"2017-06-02T20:50:58","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/consumer\/insurance\/what-is-an-insurance-premium.html"},"modified":"2024-03-26T23:27:06","modified_gmt":"2024-03-27T04:27:06","slug":"what-is-an-insurance-premium","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/consumer\/insurance\/what-is-an-insurance-premium.html","title":{"rendered":"What Is an Insurance Premium?"},"content":{"rendered":"\n
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What Is an Insurance Premium?<\/h1>\n
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\n By Oni Harton, J.D.<\/a> | Legally reviewed by Melissa Bender, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

The security and peace of mind of having an insurance policy<\/a> can be significant. But insurance coverage isn’t free. It comes with a price. The premium is the price policyholders pay an insurance company for an insurance plan.<\/p>\r\n

The policyholder pays the premium costs in exchange for insurance coverage. The insurance company must provide benefits according to the insurance policy<\/a> terms. The article below discusses insurance premiums and their role in insurance policy costs.<\/p>\r\n

How Insurers Calculate Insurance Premiums<\/h2>\r\n

Many factors determine your insurance premium for a given insurance policy. The critical component insurance providers evaluate is your risk factor. The policyholder’s insurance costs, including the premium amount, are primarily determined by the likelihood of you filing a claim for insurance benefits.<\/p>\r\n

Other factors, such as whether you pay premiums in monthly installments, semiannually, or annually, can impact the cost of your premium. Understanding the factors affecting premium rates can potentially help you save money.<\/p>\r\n

How Are Premiums Determined for Different Types of Insurance<\/h2>\r\n

Insurers and their actuaries analyze different data points to evaluate risk and determine the premium cost. Many variables factor into premium determinations. The metrics given the most weight depend on the type of insurance<\/a> at issue.<\/p>\r\n

Insurance companies try to diversify their pool of insured people among low- and high-risk individuals. This helps cover the costs of the high-risk segment, which tends to use insurance benefits more. If the insurance company can’t insure as many low-risk individuals, the premiums are even higher for those high-risk insureds.<\/p>\r\n

Another significant way most insurance companies calculate your risk factor is by examining your credit score<\/a> to arrive at an insurance score. They look at the following:<\/p>\r\n