How do they calcute the insurance premium?

16 July 2011 | Insurance premium?

Insurers are professional risk takers, which means that they know the likelihood of types of events will occur. Therefore, they can calculate how much premiums needed to create a fund large enough to cover probable payouts.

Since it is quite clear that some of the policyholders will exercise over a given period, so can an insurer take two important factors into account when calculating the premium. Firstly, how likely is it that someone will suffer an injury, and second, the person who wants to insure a higher or lower risk than the average policyholder.

A young person with a fast sports car or a driver with a long history of accidents will pay a higher premium for car insurance than a mature and experienced driver with a car with a smaller engine that has never suffered any accident.

Likewise, the owner of the restaurant to pay a higher premium for his fire insurance than the owner of an office. The risk is greater, so the premium will be higher.

Someone who is young, fresh and has a risk-free job will find it easier to buy a life insurance policy and will pay lower premiums than someone who has a heart condition or is engaged in a risky occupation.

Premiums for most types of insurance is calculated on an annual basis. This means that the amount you pay may change every year, and if you have made an application in the previous year, or your circumstances have changed, it can affect your premiums.


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