How Is Insurance Priced?

Insurance Overview

There are many types of insurance available and each will use different data in determining rates. The one thing that is constant is the insurance company will assess the chance of having to pay money on a claim and charge accordingly. The higher the probability of the insurance company having to pay out on a claim, the higher the premiums will be for insurance.

Actuaries

The person who has the most input on what insurance premiums are is known as an actuary. It is their job to weigh potential risks to the insurance company against the probability of the event actually occurring. With the actuaries' projections, the insurance company will then set its rates so that the company is expected to show a long-term profit, while at the same time not charging excessively more than other insurance companies.

Credit

Your credit score can have an impact on how much you pay for certain types of insurance, with auto insurance being the most affected. Your credit will often be looked at when shopping for a new policy. Insurance is regulated at the state level, and some states are prohibiting insurance companies from factoring credit into determining rates.

Health and Life Insurance Factors

Health insurance and life insurance use many of the same components in determining rates. The current health of the person, as well as their family health history are major considerations when determining rates. Other factors, such as age and smoking, will play large roles in pricing. Many times insurance companies will ask for physicals, including blood and urine samples, to check for any pre-exisiting conditions, such as high cholesterol, high blood pressure and other factors that may make a person to be considered high risk.

Car Insurance Factors

Car insurance rates are largely determined by a person's driving history, although other factors, such as age, sex and the type of vehicle insured will play a part in pricing. Location is another factor that will influence car insurance rates, as drivers living in large metropolitan areas are more likely to get in an accident than drivers living in rural areas. Some locations are also more prone to have vehicle theft or vandalism and that will also affect rates.