Insurance is available for just about anything. When you purchase an insurance policy, the personal information you provide, along with factors that depend on the type of insurance combine to determine the price, or premium, you pay for the level of coverage you choose. You can usually pay insurance premiums in one lump sum or in installments.
Factors
The factors insurance companies use to determine premiums depend on the type of insurance, such as life, home or auto. General factors that can influence premiums include level of coverage, deductible amounts and credit-based insurance score.
Factors specific to health and life insurance include age, occupation, personal and family health history and lifestyle choices. Lifestyle choices include whether you smoke or participate in high-risk hobbies, such as skydiving.
Auto insurance factors include information about you and the vehicle you want to insure. Auto insurance underwriters then look at previous claim history and confirmation of continuous coverage to determine premium charges.
Homeowner's insurance looks at the size, age and condition of the home. The risk level of the area where you live, such as a floodplain, proximity to emergency services and crime statistics for the area are also important factors.
Features
A main feature determining insurance premium cost is your credit-based insurance score. While the method each insurance company uses to calculate this score is different, all base calculations on information from your credit report. This information usually includes the length of your credit history, payment history, outstanding debt, types of credit you have and account balances. The higher your insurance score, the less risk you pose to an insurance company. This results in a better rating and lower insurance premiums.
Process
Insurance underwriters first evaluate the information you provide on your application. Then they classify your application according to the level of risk you pose by determining your insurance score, and either decline or write and rate the policy to determine premiums. Premiums directly relate to risk. Underwriters assess risk using computer software and complex mathematical formulas called algorithms that are specific to the type of insurance and insurance company you choose.
Your Role
Some factors that determine insurance premiums are ones you cannot control. You do play a major role, however, in determining the amount you pay for insurance. Insurance scores derived from your credit score and risk levels derived from your life style are factors you can control. Things you can do to lower insurance premiums include cleaning up and maintaining a good credit history, living healthy by eating well and exercising, and quitting smoking. In addition, maintain a good driving record and take steps to make sure your home is safe and in good repair.
Considerations
Because each insurance company uses it own methods to determine insurance premiums, costs can vary significantly for the same insurance. Shop around and get quotes from at least three companies before filling out an application.
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