What is the basis on which premium insurance policy fixed?
Premium insurance policies are fixed based on various factors, including:
1. Risk Assessment: Insurance companies assess the level of risk associated with insuring a particular individual or asset. This assessment considers various factors such as age, health, driving history, property location, and type of coverage required. Higher-risk individuals or assets will generally pay higher premiums.
2. Coverage Amount: The amount of coverage you choose also impacts your premium. The higher the coverage amount, the higher the premium since the insurance company assumes greater financial risk.
3. Policy Type: Different types of insurance policies have different premium rates. For example, whole life insurance policies typically have higher premiums than term life insurance policies because they offer lifelong coverage and include a savings component.
4. Underwriting Guidelines: Insurance companies use underwriting guidelines to determine the risk profile of an individual or asset. These guidelines consider factors such as medical history, occupation, hobbies, and any pre-existing conditions. Some individuals may be denied coverage or offered higher premiums based on their underwriting results.
5. Claims History: Your past claims history can affect your premium rates. If you have a history of frequent or significant claims, you may pay higher premiums as the insurance company perceives you as a higher risk.
6. Location: Geographical location can also impact premium rates. Areas with higher crime rates or natural disaster risks may have higher premiums due to the increased likelihood of claims.
7. Deductibles: The deductible, which is the amount you pay out-of-pocket before your insurance coverage kicks in, also influences your premium. Choosing a higher deductible can lower your premium, as the insurance company assumes less financial responsibility for small claims.
8. Policy Duration: The duration of your insurance policy can affect the premium. Longer-term policies may offer lower premiums compared to short-term policies since the insurance company can spread the risk over a longer period.
9. Group Policies: If you are part of a group, such as an employer-sponsored health insurance plan, you may benefit from lower premium rates due to the collective bargaining power and risk-sharing among group members.
10. Competition: Insurance companies compete for business, so comparing quotes from multiple providers can help you find the best premium rates for your specific needs and risk profile.