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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.

deductible premium ratio chart

How can I reduce my insurance premium?

Consider some of these potential solutions to reduce your premium while maintaining the coverage you need:

  • Contact us to conduct a policy review and ensure you're getting all applicable discounts.

  • 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.

The content on this page is intended for informational purposes only. It is not an insurance policy, and does not, in any way, replace or modify the definitions and information contained in individual insurance policies. Terms and coverage availability may vary by state, and exclusions and deductibles may apply. Discounts also vary by state and may not be applied to all policy coverages. Coverage for an accident or loss is subject to the terms and conditions of the insurance policy applicable to a particular claim.