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What is the premium in insurance? Different Premiums?

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Hello Gnees Army,

Good Morning,

In simple words, the insurance premium is an amount of money for an individual or policyholder pays for opting an insurance policy. However, today we will know about insurance premium, its types, factors that are responsible for fluctuating the premium cost and many more. So, here we go…

When you opt for your insurance plan or policy, your insurance company will charge an amount. This is the amount you pay for the policy which is covering you and that is called the premium. Policyholders may choose a variety for paying their insurance premiums. The difference in paying insurance premium depends on the sequence of payment. Like?

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What is the premium in insurance
What is the premium in insurance?

 Types of Paying the Premium 

One Time Payment: The insured pay the total payment of insurance premium before it starts in counting.

Monthly: Premiums are paid on monthly basis. These are though affordable for short time but for a long time costs more.

Quarterly: Paid Quarterly (4 times) in a year. Costs less than a monthly plan.

6 Months: Paid twice in a year. Costs less than before twos.

Yearly: Though it costs your pocket higher for one time. But the ultimate cost is very less than all other modes before.

Once the issuing of the insurance completed, the premium is an income for the insurance company. From then it’s their liability, as the insurer to provide coverage for claims being made against the policy. Failure to pay the premium on going the policy of an individual may result in the cancellation or termination of the current policy. However, Insurance premiums are paid for policies that cover mainly Health, Vehicle, Home, Disability, Travel and Life Insurance.

 Factors that are responsible for fluctuating the premium cost 

One thing to notice here, though there is a certain amount in insurance that is tax-free from your government, there may be additional charges payable if you exceed that certain amount, including taxes or services fees. Therefore, the price of the premium depends on a variety of some common factors including:

  • Type of coverage
  • Term Duration
  • Your Age
  • Competition
  • Your Location

Type of coverage: The more you want to put coverage like critical illness, accidental cost the more you have to pay for the premium.

Term Duration: Increasing the policy period will also cost more.

Your Age: As we know, in general, the old people health is less healthy than the youth, so they required more medical attention. And the cost of that extra protection of their health causes the price of the premium higher.

Competition: The more competition between insurance companies, the more offers and advantages the insured will get. Because more competition force companies to offer you more for their surviving in this field.

Your Location: If you live risky areas like in earthquake zone or coastal areas, consequently, the premiums for opting insurance will be higher.

So basically to say, there are mainly two factors that control your insurance cost –

#Factor No. 1 – The type of premium you want to pay for

Fixed Premium: In this premium, the policyholder has to make fixed payments till the end of policy maturity period.

Flexible Premium: In this one, you will get the option to make certain changes in your insurance policy in future like want to increase the total amount to increase the number of people covered under a term insurance plan or can increase the sum assured. The changes made in the policy cause changes in the premium amount to be paid.

#Factor No. 2 – The type of premium you purchased for

Life Insurance Premium: The factors that affect the cost of the premiums for life insurance include the age of the insured, annual income, assets owned, debts to be paid to others, health information etc. There are two types of premiums for life insurance.

One is Term Life Insurance, which is nothing but a specific period of time that the insured will get life coverage and have to pay the premium for that specific time. Like it maybe for 10 years or 20 years.

Another is Whole Life Insurance, which covers the whole life of the insured. After the insured dies, his family will get financial support from the insurer.

Health Insurance Premium: Health insurance provides cover for the medical expenses, hospitalization, illness treatment, surgeries of the insured, or may even cover regular free medical checkups in case of emergency or claim.

Factors for this insurance are like the higher will your age, more will be the premium, your pre-existing health conditions, family size, your current health conditions, smoking or alcohol addiction or not etc.

Home Insurance Premium: Premiums for homeowners insurance are honestly straightforward, although they’re often determined by several factors like your home’s location (that is an earthquake or natural calamities zone or not) size, age etc.

Vehicle/Car Insurance Premium: Vehicle Insurance Premium is calculated based on the model and age of the car, driver age, occupation, gender etc.

Travel Insurance Premium: The biggest advantage of travel insurance is it provides you benefits of both health insurance and life insurance during your travelling. The factors to be considered in this case are the place of travel like abroad or domestic, trip cancellation etc.

Disability Insurance Premium: It is income protection to cover the chance you’ll experience a disability that keeps you from work longer than 90 days, according to business insider. Age, location, salary, occupation, coverage amount, benefit period, waiting period, health conditions are the main factors in this premium.

So, hope you have clear ideas about what is the premium in insurance, its types and price up-down reason. Thanks for reading. See you soon 😉

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