insurance premium definition | What is insurance premium

It is important to have insurance for any eventuality that may arise; Life is about taking risks, and it is much better to take them when you have insurance. The insurance premium is the amount of money with which you get insurance coverage through a policy. It is paid through installments, stipulating the total value of the coverage and the monthly salary.

What is the aspect of greatest interest when acquiring a premium?

One of the essential factors when acquiring an insurance premium is risk; All activities involve one: having an accident, losing an inventory, acquiring a large loan, among many more … 
The risk is the measure by which insurance premiums stipulate coverage. This is due to the variation that exists; Therefore, insurers offer various types of premiums, moldable at different risk rates. 
Banks are entities that also manage risk, even at the same personalized level of the individual. Therefore, insurers consider credit experience.(In other words: such as interest payments for a service, stipulated by monthly income, retroactive capacity and confidence for the analysis of the insurance premium).

 

Raw Types 

Like the different activities we do every day, it is the versatility of options we have to choose from. Insurance exists to be prepared for any unexpected situation. 

The types of insurance premiums are as follows: 
Risk premium: is the total amount of net coverage considering the total refund of the premium. 
Inventory premium: applies to administrative processes such as budget eventualities or costs. 
Commercial premium: the coverage of this premium is focused on being an exclusive business service. 
Provisional Premium:In this premium the amount varies by clauses stipulated in the contract at the time of acquiring the insurance policy. 
Definitive premium: within the insurance policy this premium remains immovable. (That is, the amount to be paid does not vary within an annual period of time). 
Natural premium: it  is of annual duration and has a total remuneration in case of death. Refers to a risk premium. 
Level premium: it is a premium whose duration extends over time, assuming risk variations. However, the annual amount does not vary considerably. 
Increasing premium: the value of the amount will be proportional to the risk growth. 
Decreasing premium: In this type of premium the value of the amount varies depending on the decrease in risk. 

How is the insurance premium calculated?

The calculation is used through mathematical formulas, considering different items or variables for analysis. 
The pure premium: the calculation is made by dividing probability between the number of claims (damages that can be caused) and the number of insured persons (objects to be insured) by the cost of both. 
Inventory premium: it is the result of the sum of the pure premium plus administrative expenses. 
Rate premium : pure premium plus external management expenses 
Total premium: is the sum of the pure premium plus taxes and more tax liabilities.

Examples of insurance premium calculations

Let’s say you are going to buy life insurance at all risk, the first point of interest is to get the best option: “the most extensive coverage” . (That is, the one that gives you the most benefits at an affordable policy price). 
To calculate it, take into account your profession, since the risk varies according to it; It is not the same, to be a full-time office worker, than to work in a construction company. It is also tied to the nature of the object (if it is an object). For example: if it is a vehicle, it will be more exposed than a family heirloom, which will imply greater risk.
Moreover, the most common premiums are those that cover all-risk vehicle insurance; because the risk of collision, or that some unforeseen event may occur, is relatively high. 
Next, consider your salary, expenses and the possibility that something might happen to the insured object. 
It is important to highlight that: trust is the counterpart of risk, the higher the level of trust, the lower the level of risk. Banking, commercial and insurance entities translate it into benefits for the user in exchange for interest payments. 

2 thoughts on “insurance premium definition | What is insurance premium”

Leave a Comment