What Is an Insurance Premium?
An insurance premium is the amount you pay for your insurance policy. The premium for a given policy can be found on the declarations page.
Companies may calculate premium on a 6-month or 12-month basis. When comparing insurance quotes, be sure to check the start and end dates of coverage.
How is my insurance premium determined?
Once a base rate is determined, individual insurance premiums are calculated based on a variety of factors that are unique to each policyholder. For example, your premium could be based on the following factors, among others:
- Your claim history
- The characteristics of what you are insuring (e.g., vehicle type or size of home)
- The number of drivers in a household
Adding endorsements to your policy may result in additional charges.
These factors help insurance companies price policies based on an individual's actual risk of having a loss.
Relationship Between a Deductible and a Premium
The policy limits and deductibles you choose can also affect your insurance premium. As a rule of thumb:
- A higher deductible results in a lower premium.
- A higher coverage limit results in a higher premium.
If you're looking to lower your premium, a higher deductible can help.
How can I reduce my insurance premium?
Consider some of these potential solutions to reduce your premium while maintaining the coverage you need:
Bundle your auto and homeowners policies for discounts on both.
Raise your deductible to reduce your monthly premium. Just note that this could mean higher out-of-pocket costs if you have to file a claim.
Consider whether you still need certain endorsements or coverages. For example, physical damage coverage may not be cost-effective if your car is more than five years old.