Understanding insurance can be confusing and so can understanding how premiums are determined. If you have ever found yourself wondering what factors help to determine how much you pay for your premiums, the following article will work to help shed some light on the process.
Whether or you own a car, have a family to provide for, or are the sole breadwinner, you can purchase insurance based on the amount of risk you’re comfortable with. Every person has unique situations that may influence their policy coverage upon which the premium is based. However, some factors help explain how insurance premiums are determined.
Following are the 5 essential factors that influence insurance premiums.
1. Your Policy Type
The cost of term life is different from that of whole life, and so are the premiums for each. The cost of whole life insurance could be more affordable, but you might want to shop around for term life insurance so that you can compare the costs. For example, a healthy 20-something might be able to buy a $1 million 20-year term life insurance policy for $500 a year. A smaller policy of about $250,000 might cost just $15 or $20 a month. A whole life insurance policy could cost $9,000 more per year for the same $750,000 in coverage as a term policy. When such a big disparity occurs, buying term life insurance coverage may save you more on life insurance premiums.
2. The Level of Your Deductible
The rate of your annual premium can be based on your deductible. The deductible is the amount you are willing to forgo when there is a claim due to a covered peril. This is the dollar amount that you’re required to pay toward a covered loss. The National Association of Insurance Commissioners (NAIC) says that the higher the deductible you select, the lower your premium will be. What that means is that if you have a $5,000 deductible on a $500,000 worth of death benefits, your policy will pay you $495,000 as a payout.
3. Your Personal Insurance History
Your previous insurance record can affect the types of coverage you can purchase as well as your premium levels. This history may include the following:
- Frequency of claims explains how often you have made claims.
- Insurance Score. This is related to credit history.
- Continuous coverage. How long have you had your insurance policy in place?
For instance, if you have a record of misinformation on your health status, this could affect your insurance score and you may be paying even more life insurance premium.
4. Your Home Type
The type of home you live in may also play a factor in your premium. The Insurance Information Institute (III) says that the age of your home, as well as the quality of framing and foundational materials, may affect your insurance premiums. Your insurance risk increases if your home has a staircase, which may be reflected in your insurance premium.
5. Your Location
Your location could also affect the amount you pay for insurance premiums. The type of claims that have been made in your neighborhood is directly related to your location. The Insurance Information Institute (III) also says that strategic installations like fire hydrants or a fire department situated close to your home can affect your premium. In addition, III says that geographical location, including proximity to the coast, maybe a key factor in determining your insurance premium.
These are some of the essential factors that may influence your insurance premiums. If you’re looking for an experienced agency offering personal and commercial insurance near you, contact the experts at East End Insurance Agency today. We are ready to assist you with all your coverage needs.