Auto Insurance: What Is A Premium?

Simply put, an insurance premium is the money that a company will charge for actively covering the policyholder’s automobile. The amount that a person will pay in premiums, which may also be referred to as the rate, takes several different factors into consideration, which include health, age and location, though every company has its own particular formula. Either way, when the premium goes unpaid, the policy often becomes void and the company will not honor a claim.

Premium Coverage

Generally, the premium will cover everything that the insurance policy lists. In addition, the exact services that the company provides also depends on what the policy entails.

In the case of auto insurance, most premiums will cover the damages made to the policyholder’s vehicle, roadside help, medical bills that arise from an accident as well as damages made to another vehicle in the accident. In the case of another kind of motorized vehicle, such as a boat or a motorcycle, the insurance policy will typically have the same kind of services available.

How Rates are Calculated

Figuring out how much to charge for an insurance premium largely depends on considering statistics, although the specific individual’s history and driving habits can affect whether the rates are higher or lower. For example, a 45 year old woman driving a family sedan will easily have lower premiums as opposed to a 23 year old male who just purchased a luxury sports car.

Neither may have a history of collisions and both may take safe precautions on the road, but the insurance company will consider the younger and faster of the two to be more likely to get into an accident. Because of this, it is common to see these two have very different insurance quotes provided to them.

The area in which one lives will also cause the premium for insurance to vary as previously mentioned. When it comes to covering an automobile, the insurance companies that offer service in urban cities or places that are known to have more frequent car accidents in comparison to other regions will typically charge its policyholders more money than if they lived in an area where there are not that many accidents. If a company considers someone to be too risky, they may decline a policy.

Providers will generally provide varying costs for premiums, which is why all of the insurance experts will always tell people to shop around and look for as many quotes as possible before coming up with a decision on the policy. Keep in mind, however, that sometimes the lowest premium price quoted can be a real bargain but it may not offer nearly the same level of coverage as someone else that requires a higher premium.

Why Rates Change

Although there are several factors to consider when it comes to premium rates, one of the most common reasons that a company will change the rate of its policy is having a rather high number of claims. An insurer takes into consideration how much it will need to pay for the policyholder over the life of the policy. Given that an auto insurance company is a business, it will try its best to pay out less money than the policyholder is going to send to the company via premium payments. If a person regularly files a claim against the policy, then the company will need to pay out some money and put a limit on how much it profits. This will cause the premiums to rise in order to recoup the money.

With the same line of thinking, the auto insurer may want to raise its premium rates even if it expects that there will be an increase in claims. For example, should a policyholder who is normally healthy suddenly gets into a car accident and suffers permanent injuries from the collision, then the auto insurance company may raise the rates of his premiums since the company expects it may impair later driving. Of course, the rates can raise due to a simple increase in service price or to keep in line when it comes to inflation.

On the other hand, while insurance companies are well known for raising the premiums for any number of reasons, it is still possible to have this rate lowered as well. For example, there are some companies who will provide a discount to drivers who continuously have a good, safe driving history, and some discounts may even be available to a student who maintains a high report card in school. Improvements to a car can also help lower the price, such as installing a new passive alarm system or other similar safety features; a car with more airbags will generally not cost as much to insure as if it had no airbags.

Missed Premiums and Payments

Depending on the policy, an insurance premium can be paid on either a monthly, semi-yearly or yearly basis. A policyholder can often also combine the policy with other fees for some services or even combine other policies with the same company in order to have lower fees overall for services the policyholder would need anyway. For example, combining auto insurance and health insurance from the same company can provide discounts with both policies.

Should a policyholder ever fail to make a payment as planned, then the company may decide to outright cancel the plan. This is known as a lapsed policy where the customer may need to pay off the insurance premium balance to restore the policy or else it will be voided entirely. It is common for some holders of policies to forget to pay before the policy lapse due to the simple fact that the billing cycle can be larger than normal. In most cases, people cannot make policy claims after missing a premium payment.

It is also not possible to receive money paid for an insurance payment refunded, even if the individual never has to make a claim on the policy for its lifetime. One may believe this is a waste of money but a single claim can quickly make up the difference of paid premiums. For most people, this peace of mind makes the policy worth it.

Insurance Fraud

One problem that many auto insurance companies face is the instance of auto insurance fraud, which is an effort to unlawfully receive extra money from a policy by staging accidents or purposely changing facts to further benefit from them. This is far more common than one may think, which is why those who provide auto insurance policies are very cautious when it comes to reviewing claims. Policyholders would do well to know what kind of claims raise the biggest red flags even when legitimate. Having an insurance agent can help prove a claim as legitimate and have it processed effectively and totally.

When a person files a claim against his insurance policy, he should be as forthcoming, complete, honest and as accurate as possible. Should there be any kind of questions about the claims process, then one should look to speak with an insurance agent in order to learn more about the process and obtain information. Do not worry if a company has an investigator come out; this is often routine. It is helpful to provide documentation and police reports to help verify the accuracy of a claim. However, as long as the claim was made in good faith, there should be no problem.