If you have an insurance policy, you have probably heard of premiums, deductibles, and limits. But do you know what each of these terms means? Each of these concepts helps determine how much you will pay for your insurance (for example, homeowner, car, boat, or life) and how much you can get after a covered loss.
Here is a guide to better understand these terms.
What is an insurance premium?
An insurance premium is an amount that you pay regularly to your insurer to keep a current policy. Depending on your insurance company and your specific policy, you may be able to pay premiums monthly, quarterly, every six months, or annually. If you do not pay your insurance premium, your policy will be canceled and you will have no financial protection for claims.
HOW IS THE PRICE OF PREMIUM INSURANCE CALCULATED?
There are many factors that can affect the price of an insurance premium. These are some of the factors that can affect the amount you pay for a policy. The price you pay is different if you take out a home, auto, or life insurance.
Factors that can affect your homeowner’s insurance premium
- Coverage limits you choose
- Optional covers you choose
- The age and condition of your home.
- Your damage history
- Your credit rating
- Housing type
- Local fire protection
- Discounts for security locks, alarms or insurance packages
- Source: National Association of Insurance Commissioners (NAIC)
Check with your insurer to see if you are eligible for home insurance discounts to reduce the costs of your policy.
Factors That May Affect Your Auto Insurance Premium
- Your age
- Your driving record
- Type of car you insure
- Age of your car
- Types of coverage you choose
- Insurance coverage limits you choose
- Where you live and drive
- How much do you drive
- Your credit score
You may be able to take advantage of auto insurance discounts to lower your premiums. Check with your insurer to see what discounts are available.
Factors That May Affect Your Life Insurance Premium
- The amount of life insurance coverage you purchase
- The type of life insurance you choose
- Duration of your policy
- Your age, health, and life expectancy.
What is deductible insurance?
Insurance deductibles are the amount of money you pay out of your pocket for a covered claim. Suppose you choose a deductible of $500 when you buy home insurance for your home insurance. A fire later damages your home $10,000. If your claim is covered, you will pay your $500 deductible for repairs and your insurance will pay the remaining $9,500.
If you respect your deductible, this means that you have paid the full amount of your deductible and your insurance will help you cover the remaining costs of your covered claim up to the limit of your insurance coverage.
It is likely that you have several deductibles in the same insurance policy. Indeed, each cover can have its own deductible. In some cases, your insurance company may set deductibles for private policies. In other cases, you can choose your deductible. You can save money on premiums by choosing higher deductibles. In general, the higher your deductible, the lower your premium. For example, if you choose a deductible of $1,000 for your automobile insurance policy, you will probably pay fewer premiums than a deductible of $250.
Check your policy or contact your insurance agent to find out which deductibles may apply to your policies or to adjust your deductible.
WHAT IS AN INSURANCE LIMIT?
An insurance limit is a maximum amount an insurer pays for a covered claim. As the higher your coverage limit, the higher your premium. Limits often apply to different types of insurance coverage in a policy.