How your insurance premium is calculated

How your insurance premium is calculated

December 9, 2016
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An insurance policy can take a lot of money out of your pocket. That’s why it’s so important to always shop around before buying one. It’s the only way to make sure that you get the lowest premium possible.

An insurance premium is the money an insurer charges for coverage. They differ from company to company, and it is important to note that, sometimes, the insurance premium quoted is slightly different from the premium charged. This is because of the way insurance companies calculate premiums.

How your insurance premium is calculated

Insurance companies use statistics and mathematical calculations to determine how much your premium will cost you. The data used includes information that already exists, about your life, age and health. Younger people, driving fast, sports cars, will pay a lot more than a person who is 50 years old and who drives a safe car.

Everyone who applies for insurance goes through such a process. It involves investigation into familial diseases and looking at certain reports, such as motor vehicle reports or reports from the medical information bureau. All this information is gathered and analyzed by a statistician hired by the insurer. The statistician then tries to predict how likely it is that the customer makes a claim on the policy. If the chances for this are high, then the premiums will also be high.

The bottom line

It’s important what you do and how you act. If you are responsible and if you take good care of yourself, chances are you will get a lower premium. And this will protect both you and your finances.

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