What is an Insurance Premium?

We know that we regularly pay the insurer. But, what exactly makes up an insurance premium?

Insurance could be called prospect care. Societies in the beginning learned that theft, fire, and other incidents can cause great losses of livelihood and property. They also realize that when someone dies, the people who depend on that person might be left without money to support themselves.

Knowing that they would return the favor if a similar event happened to you at some point in the future,the earliest form of insurance was simply to help other people. For instance, if there is a fire that burnt down your neighbor's home, you would help them rebuild it. Community members who would not pitch in and help could not count on others to provide help to them.

It is possible, of course, that you may never need help. You have wasted your time, if that's all you have. Likewise, you may think an insurance premium is wasted if you don't ever have to file a claim.

Insurance companies make profits by collecting premiums and investing in unrelated things. Ascertaining the dollar figure to charge for insuring property or a person's life is called underwriting, and involves evaluating risk. The higher the risk to the company, the more more they will charge for premiums. For instance, if you've gotten a lot of tickets or been in wrecks, your insurance premiums will cost you more for the future. A policy might be not even be written, if those in charge feel that the risk may be too large.

Recently, in Florida, there was an insurance crisis where people were making a lot of claims due to water, hurricane, and wind damages. Insurers have found it too risky to offer homeowner policy in some regions due to the increased potential for disasters. Customers across North Carolina pay higher premiums because of the frequent claims by residents of the Outer Banks, an area frequently damaged by hurricanes.

Thus, it's not always an individual's or property's history that makes an insurer charge larger premiums, but the rate of claims across a community or region. One good example is the practice of charging more to insure younger drivers because, statistically, they have more accidents and present a greater risk.

The actual reason we purchase various insurance premiums is to have satisfaction of mind. Gathering information for insurance quotes or comparing premiums is easily obtained online.