What is the insurance premium? How is it calculated?
What is the insurance premium? How is it calculated?

What is the insurance premium? How is it calculated?

4 minutes, 7 seconds Read

What is the insurance premium? How is it calculated?

What is the insurance premium? How is it calculated? Almost everyone uses some type of insurance. Whether it is for the car, the house, life, or health, we have all taken out insurance in our lives and we know what the procedure is like:

we pay a fee, called the premium, and if we have a claim, the insurance pays. Next, we tell you all the information.

What is the insurance premium?

The insurance premium is the price of the insurance, that is, the price that the insured pays for the coverage

that he receives from the insured risk to his insurance company.

The  obligations  of the parties to the insurance contract, in this sense, would be:

  • the policyholder  (the company’s client) is obliged to pay the premium in accordance with the conditions described in the insurance policy.
  • The insurance company undertakes to indemnify or pay a capital, an income or other agreed benefits in the event that the event whose risk is covered occurs.

What does the price of the premium depend on?

First, the amount of the premium depends on the type of risk insured and is set in advance by the insurance company.

In addition, the price of the premium must be sufficient for the insurer to be able to deal with the insured claims. But the type of risk is not the only variant that determines the price or amount of the premium charged by the insurance company. Other factors to take into account are:

  • Contract period
  • the insured capital
  • factors specific to the type of insurance this last point is very broad and depends on the type of insurance or the insured asset. For example, in the case of  car insurance,  the factors that will influence the calculation of the insurance premium, in addition to those described, will be:
    • driving history
    • Use given to the car and number of km traveled per year
    • Address of the insured
    • Driver age
    • vehicle type

How is the insurance premium calculated?

  • Pure premium: this is the current value of the insured risk based on the statistics made and the technical interest rate attributed
  • Inventory premium: pure premium + administration expenses
  • Rate  premium: inventory premium + external management expenses
  • Total premium: rate premium +  taxes, Insurance Compensation Consortium, Insurance Entity Settlement Commission…

Insurance Premium Classes

  • Single premium: premium that is paid in a single payment during the term of the insurance. It is the least frequent modality.
  • Periodic premium: premium that is paid in regular installments during the duration of the insurance, for example, annually.
  • Fractional premium: annual premium that is settled through periodic payments smaller than the annual one. In the event of a claim, the insurance company can claim from the insured the rest of the fractions of the premium not paid.
  • Fractional premium: calculated for a period of less than one year. In the event of a claim, the insurance company will pay the compensation without demanding the insured pay the rest of the premium.

When do I have to pay the insurance premium?

The first insurance premium must be paid at the time the insurance policy is signed in order to be covered for the insured risk.

Next, the insurance premium will be paid at the expiration of the policy, in the event that it is not paid, the insured will have a grace month to pay the premium.

It should be noted that five months after not having paid the insurance premium,

the coverage will be suspended and the insurance company will not compensate in the event of an accident. As of the sixth month of the expiration of the insurance, it will be terminated.

On the other hand, as soon as the payment of the premium is made,

the insurance coverage will take effect within 24 hours.

Learn what an insurance premium is

The insurance premium is what the beneficiary or client pays to their insurer for the risk that it takes in the event of a claim.

In other words: it is the price of the insurance. The goal? Have the requested coverage!

That is, receive the compensation or benefits contracted. More details on this topic, are in the following note.

How is an insurance premium calculated? 

Its calculation depends on several factors; among them, the risk, the contracted coverage, the time of the contract,

among others and corresponds to a mathematical formula that includes taxes.

What insurance premiums are there?

Single payment: A single disbursement before the policy takes effect.

Periodic: includes the scheduling of regular installments for the duration of the coverage.

How can the insurance premium be used? 

And, in both cases, it requires a contract.

In addition, the value of the premium changes according to the agreed compensation limit and influences the risk that it will cover. What does this mean? That the company must be aware of the costs it will have if an accident occurs. social networking 

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