Insurance Premium
The amount you pay (monthly, quarterly, or annually) to maintain active insurance coverage.
What You Need to Know
An insurance premium is your regular payment to keep your insurance policy in force. Think of it as a subscription fee for protection against financial loss.
How Premiums Work:
Your premium amount is determined by risk factors assessed by the insurer:
Auto Insurance Factors:
- Driving record (accidents, tickets)
- Age and experience
- Vehicle type and value
- Location (urban vs. rural, state rates)
- Coverage levels and deductibles
- Credit score (in most states)
Premium vs. Deductible Trade-Off:
Lower Deductible ($250):
- Higher premium: $2,400/year ($200/month)
- Less out-of-pocket when filing claims
Higher Deductible ($1,000):
- Lower premium: $1,800/year ($150/month)
- Saves $600/year but pay more per claim
The Math: Over 5 years with no claims, higher deductible saves $3,000. Even with 1-2 claims, you often come out ahead.
Premium Changes:
- Annual increases (2-5% typical)
- Rate hikes after claims (20-40% for 3-5 years)
- Discounts (bundling, safe driver, low mileage)
Pro Tip: Shop rates every 1-2 years. Loyalty doesn't pay—insurers often raise premiums for long-term customers while offering better rates to new customers.
Sources & References
This information is sourced from authoritative government and academic institutions:
- naic.org
https://www.naic.org/consumer.htm
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
Insurance Deductible Optimizer
Optimize auto and home insurance deductibles to maximize savings with break-even analysis
Comprehensive Insurance Needs Calculator
All-in-one insurance calculator: life, disability, home/auto, and umbrella coverage with personalized recommendations and cost estimates
Related Terms in Insurance & Risk Management
Claim Frequency
How often you file insurance claims, measured as claims per year (e.g., 0.2 = 1 claim every 5 years).
Claim Severity
The average dollar amount paid out per insurance claim, indicating the size/cost of losses.
Collision Coverage
Auto insurance that covers damage to your vehicle from crashes with other cars or objects, regardless of who's at fault.
Comprehensive Coverage
Auto insurance that covers damage to your vehicle from non-collision events like theft, vandalism, weather, or animal strikes.
Pet Insurance
Insurance coverage for veterinary expenses and pet health care, ranging from routine visits to emergency surgery.
Risk Management
The process of identifying, assessing, and controlling threats to your financial security and goals.