No matter what challenges life dishes out — like a terrifying natural disaster or the unexpected death of a family breadwinner — having enough of the right kinds of insurance can help you cope.
Insurance is a financial safety net that no one should be without. However, this protection and peace of mind comes at a price, which is known as a premium.
You pay insurance premiums in regular installments, such as monthly, quarterlyor semi-annually. But no matter how often you’re billed, what’s most important is that you pay each premium by its due date.
For instance, if your car insurance is paid up and you get in a wreck, you can submit a claim for damages and receive a settlement for repairs. Or if your renter’s policy is current and a thief swipes your flat-screen TV, you can take your insurance payout and head for the shopping mall.
But what happens if you always pay your premiums and never make an insurance claim? Unfortunately, in most cases, you don’t get a refund. While this might seem like a waste, just one significant settlement could exceed years of total premiums paid. (With certain types of life insurance, however, it may be possible to receive a refund for premiums paid or to take withdrawals from the policy.)
What causes insurance premiums to change?
For many types of insurance, companies can raise your rates for a variety of reasons, such as the number of claims you make, accumulating points on your driving record or having an insured property rezoned into a flood zone. Increases can occur according to the terms of your policy or at renewal, but not during the term of your contract.
Likewise, your insurance premiums can go down if you qualify for discounts. Being a good driver, installing a home security system, quitting smoking or bundling policies with the same insurer typically translate into paying less.
How insurance premiums are calculated
Insurance premiums for different types of insurance are determined using a diverse set of statistics and factors, such as age, health, credit rating, field of work, driving history and geographic location.
Let’s say you’re a 60-year-old man who smokes and enjoys sky diving. You can bet your bottom dollar that you’ll pay more for life insurance than a 23-year-old woman who doesn’t have any life-threatening habits or hobbies.
The cost of a premium for the same insurance can vary widely from one company to another. That’s why it’s so important to shop around and compare prices before buying any type of insurance policy.