What Is an Insurance Premium?

What Is an Insurance Premium?

What Is an Insurance Premium?

A premium is the price you pay to buy an insurance policy. Premiums are your regular payments for many common insurance policies, including life, auto, business, homeowners and renters. If you fail to pay your premiums, you risk having your policy canceled. Most people pay their premiums monthly, but you may save money by paying for the whole year up front or choosing a semi-annual premium. 

How premiums are calculated varies, starting with the type and amount of coverage you select. When you were shopping for coverage, did you specify the same exact coverage with both insurers for an apples-to-apples comparison? If you chose a lower deductible or higher limits with one insurer, that could explain the difference in your premium quotes.

Auto insurance premiums also typically take into account your driving record, how much you drive, how much coverage you select and where you live, among other factors. Life insurance premiums typically factor in your age, health and life expectancy, along with the coverage limits you choose. 

The deductible you pick also typically affects your premium, depending on the type of policy. Your deductible is the amount you must pay toward the costs of an insured loss — say a car crash or home fire — before your insurance company makes a payment. With most home or auto insurance policies, choosing a higher deductible can lower your premium costs. 

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