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What is an Insurance Premium – Everything else that You want to Know

Insurance Premium and Everything else that You want to Know

When it comes to insurance, there are still a lot of people out there who lack a comprehensive understanding and hence often stumble across the way when looking for a specific answer to their question.

The world of insurance is as complex as it can be and one might end up making a wrong decision if you don’t know the basics right. Mostly, people face trouble with paying their premium as they often miscalculate at what rate they are being charged by a bank or an insurance service provider.

This is chiefly because they don’t know what an insurance premium is and how it is calculated. Many people are also not sure of things like insurance premium auditor insurance premium refund and deductibles. Yahoo Answers that happens to be an online community helping fellow users getting their queries answered gets over five hundred questions posted daily that is related to an insurance premium.


Before we go forward into delving deep into the factors that are responsible for affecting the premium rates, it’s wise to form a comprehensive understanding of what is an insurance premium and what are the important components. Simply put, an insurance premium is nothing but a particular sum of money that an individual or a business is liable to pay when they purchase or sign up for an insurance policy.

Thus, the insurance premium is generally considered to be an income that is being gained by an insurance company on a monthly or yearly basis. As such the insurer stands liable to offer coverage for one and all claims that are made by an individual against the policy that he holds. As such, it is important to note that the figure for insurance premium might increase following the end of the policy period. As such the insurer enjoys the right to increase the premium if there have been any incidents of policy claim made during a particular period.

Another important aspect is understanding what is an insurance premium is to know how insurers are making use of the premium money. Generally, insurers make use of insurance premium to effectively cover any and all liabilities which bears a close association with the underwritten policy.

They also invest the premium to obtain higher rates of return as they invest the same in assets that carry variable liquidity feature which is also predetermined by state regulators, keeping in terms with the insurance market protocol. It is the duty of the regulators to make sure that any policyholder shall be able to claim as they have religiously paid for it and holds the same as an adequate reserve to their financial profile. Here is a glimpse into what are the important factors that affect an insurance premium rate and what you can do about it.

Age of an Individual

The first and the most important criteria for an individual applying for an insurance policy is his age. Mostly, one gets to enjoy a lower interest rate for insurance premium if they are young and higher when they grow older. This is because most insurance companies while sanctioning different types of insurance calculate your premium paying ability by looking at your current age and if you are young then you might have a higher chance of staying alive than when you are applying for a life insurance at a higher age.

Medical History

Your medical records and history of health is the second most important criterion for determining the insurance premium. If you have been generally fit all throughout your life up till the time you are applying for a life insurance, then you might be issued a policy that will have lower interest rates for its premium.


Your profession is the third most important criterion for determining your insurance premium tax for different kinds of insurance. Insurance companies are less likely to charge you lower rates on your premium if you are involved in an occupation that is full of hazards. One more important determinant, in this case, is your pay scale which also attracts lower or higher premium rates as required.


No matter how striking it sounds, your gender does play a key role in determining the rates for your insurance premium. Women, in general, live more than men do. Hence, their life expectancy is higher than men and so they enjoy lower interest rates on their policy premium.

The policy type

The type of policy is also equally responsible for affecting the rate of the premium. As such, the longer the policy term will be, the amount paid as benefit following the death is higher. Similarly, the amount of premium that you pay for such a policy is also relatively higher. This is simply because if you manage to live out the entire policy period, you shall be enjoying the benefit before you actually die. This is why long-term insurance policies are way more expensive than short-term insurance policies in comparison.

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