Life, Health, and Homeowners' Insurance Premiums Demystified

Written by Andrew Freiburghouse on February 2, 2010 & Posted in Insurance

"Premium" is one of those words with several totally different meanings, depending on the context. In the context of insurance, a premium is the periodic payment you make to have an insurance policy.

Insurance Premium Pricing Factors
How much your premium is for any particular type of insurance depends upon the insurance company's calculation of how much risk giving you insurance entails. If you are a smoker, for example, your health or life insurance premium will be much higher than the premium offered to a non-smoker, because the insurance company views your health as more at risk.

However, if you're paying a higher insurance premium than your friend, don't necessarily take it personally. Insurance companies routinely calculate risk based on statistical formulas that have nothing to do you with your personal history or behavior. If you're a male teenager, for example, you're going to pay a higher car insurance premium than your grandmother does, because you're in a "high-risk group" (but if you're a good student, they might give you a break).

Basics out of the way, let's get to the good stuff: how you can pay lower premiums.

How to Find Lower Insurance Premiums
However, there are ways that you can pay lower insurance premiums while still receiving great coverage and service. These ways vary according to what type of insurance we're talking about, but they all revolve around the same three ideas.

? Raise your deductible, the amount you pay if anything happens. This lowers the risk to the insurer that you will file a claim, and you should reap substantial savings.

? Lower your risk. Keep in mind that some lifestyle choices are more expensive than others. You can smoke, or not--but you pay for the privilege. Likewise, homeowners' insurance in Florida is much more expensive than in Montana, for instance, because Florida has hurricanes and Montana has?..sheep.

If something about your profile changes, update that with the insurance company to see if you can qualify for a lower premium. You used to work in high-rise construction, for instance, and now you're an accountant. You should pay a lower premium, because high-rise construction work is more dangerous than accounting (in theory). In addition, some insurers will lower your rate if you maintain good health for a specified period or can supply evidence of improved health.

Shop--one component of your premium is the firm's overhead--commissions to agents, company expenses, etc.--and its profit margin. In addition, companies measure risk according to different formulas; some think you're higher risk than others. Premiums for identical policies can often vary widely from one insurance company to another.

No Premium, No Insurance
One last thing to remember about insurance premiums is that if you don't pay them, you will cease to have insurance. Since premiums are often collected every six months or so, it can be easy to forget to pay them. Remember to pay them if you still want the insurance.

Sources
Baylor University
CNN Money
Reuters

About the Author

Andrew Freiburghouse is a writer and businessman. As a partner at Los Angeles tax preparation firm Pronto Income Tax of California, Inc., Andrew has served thousands of clients both face to face and over the telephone. Currently, Andrew lives in Brooklyn, NY, and is in the process of starting up his own tax practice.

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