A:

Insurance premiums can be affected by many factors including:

  • type and amount of risk
  • size of deductible
  • amount of coverage
  • age of the applicant
  • applicant's medical history
  • applicant's past and current lifestyle

Insurance policies can be issued at the group or individual level. When group insurance is issued, minimal underwriting is required and the group as a whole is afforded insurance coverage based on a relatively average premium rate determined by the class of people being covered. When individual policies are issued, the insurance company evaluates the individual to determine coverage risk. The process of evaluation, or underwriting, can include the evaluation of many of the factors mentioned above. Upon completion of the underwriting process, the insurer uses a rating table to match the amount of assumed risk with the premium required to implement coverage.

Automobile, homeowner and health insurance policies can be issued at higher deductible levels in order to keep premiums affordable for the insured. Lower deductibles have the reverse effect and cause premium amounts to run higher. Some factors that can affect the size of premium payments for life, health, disability or long-term care insurance include age, smoker or non-smoker status, gender and medical history. Obtaining insurance for these types of policies at a young age will generally lock in lower premiums. Waiting until later in life to take out such policies can almost guarantee higher premiums. Premiums can also be made more affordable by reducing the coverage amount.

For more on this topic, read Insight into Insurance Scoring and Insurance 101.

This question was answered by Steven Merkel.

RELATED FAQS
  1. What are some examples of industries that practice price discrimination?

    Understand the various types of insurance coverage offered in the insurance marketplace, and learn why each policy should ... Read Answer >>
  2. What caused the European / Eurozone debt crisis?

    Understand how insurance companies price insurance premiums, and learn the importance of data and statistics in the insurance ... Read Answer >>
  3. How is my insurance premium calculated?

    An insurance premium is the money charged by insurance companies for coverage. Insurance premiums for services differ from ... Read Answer >>
  4. What is the average return on total revenue for the insurance sector?

    Learn about the three main segments of the insurance industry, and find out what the average return on revenues is for the ... Read Answer >>
  5. Is it more important to have a low deductible or a low premium?

    Explore the balancing act that exists between insurance deductibles and premiums, and learn the primary factors to consider ... Read Answer >>
  6. What is the range of deductibles offered with various health insurance plans?

    Explore the wide range of deductibles available on various health insurance plans, and learn factors to consider when selecting ... Read Answer >>
Related Articles
  1. Savings

    4 Reasons Why Waiting To Buy Life Insurance Is a Bad Idea

    Understand the benefits of applying for and securing life insurance coverage while you are young and healthy, and learn the cost of waiting to get coverage.
  2. Personal Finance

    Understanding Life Insurance Premiums

    When buying permanent life insurance, what amount of premium should you pay for the coverage?
  3. Professionals

    Introduction to Life Insurance

    Introduction to Life Insurance
  4. Insurance

    What To Expect When Applying For Life Insurance

    Before jumping into a policy, check out these tips on how to score the best plan for you.
  5. Insurance

    Life Insurance: Putting A Price On Peace Of Mind

    Would your death leave loved ones financially stranded? Find out how to ease your mind and keep them protected.
  6. Insurance

    5 Ways to Lower Life Insurance Premiums

    Learn several effective methods for lowering life insurance premiums. These include quitting smoking and considering term life insurance.
  7. Home & Auto

    Intro To Insurance: Conclusion

    By Cathy ParetoInsurance is an integral part of any personal financial plan. The type of insurance and the amount of coverage you obtain all depends on your unique financial and family circumstances, ...
  8. Professionals

    Group Life Insurance: Common features

    Group Life Insurance: Common features
  9. Home & Auto

    Intro To Insurance: Fundamentals Of Insurance

    By Cathy ParetoHow does insurance work? Insurance works by pooling risk.What does this mean? It simply means that a large group of people who want to insure against a particular loss pay their ...
  10. Investing

    7 Issues to Consider When Determining Life Insurance Coverage

    Seven issues to consider when buying life insurance to ensure the coverage is tailored to meet your personal financial situation.
RELATED TERMS
  1. Actuarial Equity

    The calculation of an insurance premium based on crucial factors ...
  2. Insurance Premium

    The amount of money that an individual or business must pay for ...
  3. Classified Insurance

    Insurance coverage provided to a policyholder that is considered ...
  4. Premium

    1. The total cost of an option. 2. The difference between the ...
  5. Personal Lines Insurance

    Property and casualty insurance products for individuals that ...
  6. Borderline Risk (Insurance)

    An insurance policy applicant that an insurance company has not ...

You May Also Like

Trading Center