Insurance Q&A: “What is an insurance premium?”
Seems like about half of our weekly paychecks!
Jokes aside, an insurance premium is just a fancy industry term to describe the price you pay for insurance coverage for a given period of time, whether it’s one month, six months, or an entire year.
Many people will interchangeably use the term “insurance rate,” as in, “my insurance rate is way too high!”
How your insurance premium is determined is a whole other conversation. Just know that your credit history (insurance score), the coverage you choose and your personal history will all play a role in how much premium you end up paying.
Now that we’ve defined the term “insurance premium,” let’s get into some other pertinent details.
Is the Entire Insurance Premium Due Upfront?
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 car insurance rates are determined).
Put simply, 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.
How Do I Choose?
Typically, “preferred” auto insurers will not write less than a six-month policy, while “non-standard” auto insurers will write one, two, or three-month policies, but do not offer coverage above what is required by your State Department of Insurance – although some may offer slightly higher than minimum car insurance limits.
Be sure to work with your insurance company and/or an independent insurance agent to determine what your options are.
It is recommended that you shop around for insurance quotes online and elsewhere to determine if you’re really getting a good deal.
Do Insurance Premiums Increase Every Year?
Seems like it, doesn’t it? This is always a tricky question to answer.
The bottom line is; EVERYTHING that’s useful gets more expensive over time.
For example, a VHS recorder costs less now than it did in 1985, because it’s not useful any more. Cars and food, on the other hand, are still useful and have increased in cost since 1985.
But do insurance premiums go up every year? NO, they don’t. In fact, insurance rates have been going down every year for a long time now.
But if you’re not “shopping” your rate, you may experience a yearly increase in premium.
It cannot be said enough. Shop your rate online and visit a local independent insurance agent to get multiple quotes all at once.
This is the single best way to keep your premium from increasing, and you may even be able to snag a lower premium than what you had last year.
If you work with a “chain” insurer who can only offer you one rate…and it goes up…you’re stuck with it.
And Lebron James isn’t going to make up the premium difference for you, especially after losing to Dallas in the finals…