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In order to keep your car, home, apartment, or health insurance, you need to pay a premium. While some factors that determine your premiums are within your control, including the number of claims you file, many factors — like your age and location — aren't. During the underwriting process, the insurance company will evaluate your current risk and set a premium amount. The policy will then be activated upon your first payment.
An insurance premium is a monthly or annual payment to an insurance company that keeps your policy active. Health insurance, life insurance, auto insurance, disability insurance, homeowners insurance, and renters insurance all require the policyholder to pay a premium to continue receiving coverage.
Unless you're buying term life insurance, which locks in a monthly rate for the full policy term, your premium amount usually isn't set in stone. Most policies last for six months or a year, at which point the insurance company will reevaluate your risk and may change your rate.
Several factors influence insurance premiums including location, age and health, coverages, lifestyle choices, and more.
The cost of living in your area impacts how much your insurer has to pay if you need to file a claim. For example, healthcare may be more expensive in states like New York or California and your premiums will likely mirror those elevated costs.
Additionally, living in a high-risk area influences your insurance rates. For example, policyholders who live in areas with high rates of natural disasters or crimes typically tend to see increased auto and homeowners insurance rates.
Age and health status play a role in your insurance bill, namely your health and life premium. Fortunately, health insurers can't deny coverage or increase premiums based on a pre-existing condition. However, health premiums often increase with age. On the flip side, life insurers can refuse coverage or significantly raise premiums based on age or health status.
The more comprehensive your insurance policy, the higher your premiums will be. Increasing your coverage limit, opting for comprehensive over basic coverage, and upgrading your policy with endorsements all contribute to higher premiums.
Engaging in risky behaviors and activities increases the likelihood of filing a claim. So, insurers will raise premiums for those with high-risk profiles to offset the financial liability. These "risky" behaviors vary based on insurance type. For instance, lifestyle choices like smoking or participating in extreme sports aren't used to evaluate your auto insurance premium but may be used for your health or life insurance premium.
It's a good idea to buy multiple types of insurance to protect the different areas of your life. The types of insurance policy premiums include car, life, health, homeowners, renters, and disability insurance.
Car insurance premiums are incredibly variable. In addition to being determined by your age, driving history, and location, your premium can go up or down if you're involved in any car accidents or are cited for any traffic violations, like speeding, according to insurance-comparison site Policygenius.
A typical car insurance policy period lasts either six months or a year. The premium amount listed on your agreement with the insurer may reflect the total for the coverage period, even though you'll be making monthly payments. When the policy period is up, the insurer will reevaluate your driving record and other factors and may set a new premium.
As previously mentioned, term life insurance premiums are locked in when the policy is signed. How much you pay is based on how much coverage you want, the type of policy you get, and how much risk you pose. Your risk is mostly determined by age, weight, nicotine use, driving history, health history, and your job. Your current health is evaluated during the medical exam, which will typically require blood and urine tests.
The average person can expect to pay $300 a year for life insurance, according to Policygenius, but it really depends on your situation.
When it comes to health insurance, your monthly premium isn't the only payment you have to make for health coverage. In fact, usually the lower your premium, the more you'll have to pay out-of-pocket for doctor's visits, prescriptions, and other medical costs. Health insurance policies are renewed on an annual basis, so your premium can change from year to year.
Premiums for homeowners insurance are fairly straightforward, although they're often determined by several factors outside of the homeowner's control. According to Policygenius, an insurer will consider your home's location, size, age, and build. Houses in wildfire, tornado, or hurricane-prone areas almost always have higher insurance premiums.
Another factor that goes into homeowners insurance premiums is your insurance score, which you do have some control over. The insurance score represents how likely you are to file a claim based on your credit score, claims history, and whether your home is outfitted with safety precautions like fire alarms, security systems, or weather protections, explains Policygenius.
Renters insurance is by and large the most affordable type of insurance. Your premium is based on your coverage amount; your deductible, or what you are willing to pay out-of-pocket before insurance kicks in; your credit score; your location; and the value of the stuff you want to protect.
Most people pay between $15 and $20 a month for coverage amounts into the six figures, according to Policygenius.
Disability insurance is income protection to cover the chance you'll experience a disability that keeps you from working longer than 90 days, according to Policygenius. The premium for long-term disability insurance can be anywhere from 1% to 3% of your salary, starting around $25 a month and topping out around $500 a month. Age, location, occupation, coverage amount, benefit period, waiting period, and health all contribute to the premium.
Although purchasing multiple insurance policies keeps you adequately protected, high insurance costs are often a pain point for shoppers. Fortunately, the following strategies can make saving on insurance costs a walk in the park.
Shopping for insurance by comparing insurance rates helps you find the best rates on the coverages you need. To do so, gather quotes from multiple providers, ensuring similar levels of coverage across each quote.
Quick tip: Use an online comparison tool or work with an insurance broker to get estimates from multiple insurers at once.
A deductible is the amount you must pay before an insurer covers your claim or service. Generally, increasing your deductibles leads to lower premiums. However, if you need to file a claim, your out-of-pocket cost will be higher. So, before choosing a high deductible, ensure you can afford it.
Insurance companies provide insurance premium discounts to reduce your cost. Most companies advertise discounts on their website, but it wouldn't hurt to call and ask.
Some popular discounts include the:
Policy modifications and life changes can cause your premiums to increase or decrease. Being aware of how those altercations affect your premium will help you stay on top of the cost of insurance.
Insurance premiums typically stay the same throughout your policy term. However, it could change immediately if you add endorsements, increase your limits, raise your deductibles, etc.
Premiums can also fluctuate due to changes in your risk profile, like your age or claims history. These changes are normally applied in the next policy period. One caveat: a change in location can alter your premiums on the spot.
Reviewing your insurance policies prevents overinsurance (causing you to overpay) and underinsurance in one or more areas. Work with an insurance broker to evaluate your individual needs and balance your insurance portfolio. Also, depending on the insurance type, it's a good idea to shop every year to find a better price on your insurance.
How often do I have to pay insurance premiums? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Depending on your policy terms and preferences, you'll pay your insurance premiums monthly, quarterly, semi-annually, or annually,
Can my insurance premium change over time? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Yes, premiums increase or decrease based on factors such as age, lifestyle changes, policy adjustments, and claims history.
What can I do to lower my insurance premium? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Lower your premium by shopping around for better rates, increasing your deductibles, maintaining a good credit score, and taking advantage of available discounts.
Why do insurance premiums vary so much between providers? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Premiums vary because providers weigh risk factors differently. Other elements that affect insurance rates include coverage options, discounts, and the company's overall cost structure.
Does the government regulate insurance premiums? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
Yes, state and federal regulations oversee insurance rates to ensure transparency and fairness. Keep in mind that rates still vary significantly between providers.
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