How Insurance Companies Calculate Premiums: Behind the Scenes

Whether you want to cover your personal interests or your family’s financial future, suitable insurance policies can represent critical investments. However, while insurance can help with economic security, maintaining your policies can impose additional strains on your budget. Understanding how carriers calculate your premiums may help you stretch these dollars further and maximize cost-efficiency.

How Do Insurance Premiums Work?

Insurance premiums are what you pay to maintain your policies and retain access to coverage. Keeping up with these regular payments is critical if you want to be able to file a claim for financial assistance in the aftermath of various incidents and hardships. In many cases, premiums are paid monthly, but you may enjoy lower rates if your carrier allows for annual or quarterly transactions.

What Factors Affect My Premiums?

Insurance companies may use varying criteria or at least weigh certain factors differently. Additionally, the type of coverage you’re seeking can impact how rates are calculated. Consider the following commonly purchased policies and what may influence their rates:

• Homeowners insurance—Carriers may consider many criteria, including location, personal belongings and structural details. Additionally, if your policy includes personal liability coverage, attractive nuisances and pets could be considered.
• Auto insurance—Your location is also a key aspect of these quotes, as traffic and crime rates could influence your perceived risk levels. Additionally, your vehicle’s specifications and your driving record could play significant roles.
• Health insurance—Health coverage costs can require careful consideration of your personal details, including your location and age. Additionally, smoking status and insuring more than one person, such as by adding a spouse and children to a policy, could affect rates.
• Life insurance—Securing your family’s financial future with these policies can have varying costs, often influenced by your age and medical history. Additionally, your occupation and hobbies may impact your perceived risk levels and, therefore, premiums.

Additionally, regardless of what type of insurance you’re looking for, the details of your policy will likely impact your premiums. Generally, higher coverage limits, lower deductibles and endorsements can lead to higher rates.

We’re Here to Help

At Mikel's Insurance Services in Cerritos, CA, we can help you understand your coverage options and find ideal policies with cost-effective premiums. Contact us today to get started.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.