What is an Insurance Premium?
Insurance Q&A: “What is an insurance premium?”
An insurance premium is a fancy term to describe the price you pay for insurance coverage for a given period of time.
For almost every insurance policy sold, the insurer charges a premium to be paid upfront or in installments, in exchange for a certain type and amount of coverage for a specified time period.
For example, a $500 insurance premium may provide 100/300/100 liability limits of auto insurance coverage for a one-year period.
You may be given the option to pay the $500 insurance premium in one lump sum or monthly at a rate of $41.67 per month.
But watch out for installment fees if you elect to make monthly payments. These fees can range from $2.00 to $15.00 per month, pushing up the true cost of your insurance premium!
The term, or length, of your policy is a factor in determining the cost of your insurance premium (how insurance rates are determined). You may end up paying more for your insurance if you commit to a shorter term.
If you were to purchase 12, single-month policies, you would end up paying more in insurance premiums than if you bought an annual policy.
Remember, the insurance company has to pay people to process every new policy they write; therefore, the cost gets passed on to you in the form of a higher insurance premium.
Insurance policy terms vary widely by the type of insurance you purchase and the type of insurance company you elect to receive coverage from.
Typically, preferred carriers will not write less than a six-month policy, while non-standard carriers will write one, two, or three-month policies, but do not offer liability limits above 50/100/50.
Work with your independent insurance agent to determine what your options are. It is recommended to shop around for insurance quotes online to determine if you’re really getting a good deal.
