A lot goes on when it comes to determining the premium that you would have to pay for an insurance plan. An insurance service provider takes into account a wide range of different factors to determine the premium. Being aware of these factors is crucial to be able to choose a plan that’s right for you and within your budget. Let’s take a look at what these factors are. 

 

Generic factors affecting premium in insurance 

Now, irrespective of the kind of insurance plan that you opt for, there are certain common factors that affect the premium. Check out the generic factors affecting insurance premiums down below.  

 

 

• Amount of coverage

 

The amount of coverage that you opt for plays a major role in determining your insurance premium. Generally, the higher the amount of coverage, the higher the premium tends to be. This holds true irrespective of the kind of insurance that you opt for. 

 

 

• Duration of coverage

 

The duration that you opt for your insurance plan also has a major effect on the premium that you would have to pay. The longer the tenure that you opt for, the higher the premium tends to be. This is especially true when the tenure and the amount of coverage are both high. 

 

 

• Type of plan 

 

The premium you would need to pay also depends on the kind of insurance plan that you choose. While some plans may offer only basic coverage, others may offer a more comprehensive and all round protection. The more basic the insurance plan is, the lower the premium tends to be. 

 

 

• Choice of riders

 

Another one of the key factors affecting premium in insurance is the riders that you choose. Riders are optional add-ons that can help enhance the coverage over and above the base insurance plan. You can opt for riders by paying an additional premium. Therefore, depending on the type and number of riders that you choose, the final premium that you would have to pay may change. 

 

Specific factors affecting premium in insurance

Apart from the broad factors outlined above, the premiums for different types of insurance are also affected by certain other factors that are specific to the insurance plan that you choose. Here’s a more in depth look at them. 

 

Factors affecting life insurance premium

The premium of a life insurance plan is determined based on these following additional factors. 

 

 

• Age

 

Your age plays an important role when it comes to determining the life insurance premium. The older you are, the higher the premium tends to be. That’s why experts suggest purchasing a life insurance plan when you’re young. 

 

 

• Gender

 

Your gender is also one of the major factors affecting life insurance premiums. Women tend to enjoy lower premiums than men due to higher life expectancy rates.  

 

 

• Lifestyle habits

 

If you have any lifestyle habits like smoking or consumption of alcohol, you can expect the life insurance premium to be high. 

 

 

• Occupation

 

If you’re working in jobs with high occupational hazards, it may also influence the premium of your life insurance plan. People with jobs that are highly risky would have to pay higher premiums.

Factors affecting health insurance premium

Just like life insurance plans, there are certain specific factors affecting premiums of health insurance as well. Here’s a quick look at a few of them. 

 

 

• Medical history 

 

Your health insurance premium may be higher if there’s any indication of the chance of developing any disease in the future due to your or your family’s medical history or genetic predisposition.  

 

 

• Pre-existing conditions

 

Many insurers offer health insurance coverage for individuals who possess pre-existing diseases, ailments, or conditions. However, the premium tends to be much higher.  

 

 

• BMI

 

Your Body Mass Index (BMI) also plays a role in determining the premium of your health insurance plan. Individuals in the obese category may have to pay a higher premium since obesity is a precursor to many diseases. 

 

Factors affecting home insurance premium

When you apply for home insurance, the insurance provider usually takes into account certain key factors when determining the premium payable amount. Check out a few of them below.  

 

 

• Geographical location

 

If your home is in a location that’s prone to earthquakes or other environmental factors, you may be charged a higher premium to offset the increased risk borne by the insurer. 

 

 

• Existing security measures in your house

 

If you have set up any extra safety measures in your house such as a CCTV system, motion detectors, and security alarms, you may be charged a lower premium for your home insurance. 

 

 

• The general characteristics of the house 

 

The characteristics of your house is a major factor that determines the premium of a home insurance plan. For instance, the older and bigger the home, the higher the premium.

 

Factors affecting motor insurance premium

When it comes to motor insurance, the following are the factors affecting insurance premiums. 

 

 

• The make and model of your vehicle 

 

This is by far the most important factor. The motor insurance premium is primarily dependent on the vehicle being insured. The more expensive, feature-rich, and luxurious the vehicle, the higher the premiums tend to be. 

 

 

• The age of your vehicle

 

Insuring a new vehicle can be more expensive than an older vehicle. This is due to the depreciating nature of a motor vehicle, which leads to lower premiums for aging vehicles. 

 

 

• Your No Claim Bonus

 

If you have accumulated No Claim Bonus (NCB) as a result of not making any claims in the previous years, your motor insurance premium for the succeeding years may be lower.

Factors affecting travel insurance premium

And finally, the factors affecting premium in insurance for travel are as follows. 

 

 

• The travel destination

 

The premium for travel insurance directly correlates with your travel destination. For instance, the premium tends to be higher in the case of international travel than domestic travel. 

 

 

• The number of travelers and their age

 

The more people traveling, the higher the premium tends to be. Also, the age of the individuals traveling also plays a huge role since the older the travelers are, the higher the premiums tend to be.  

 

 

• Any existing medical conditions of the travelers

 

If the individual traveling has any pre-existing medical conditions like high blood pressure or diabetes, the travel insurance premium may be higher.  

Wrapping up

With this, we’re done with yet another chapter of this module. Now that we’ve seen the factors affecting insurance premiums, in the next chapter, we’ll deal with how you can go about picking the right insurance for yourself. 

 

A quick recap

• Irrespective of the kind of insurance plan that you opt for, there are certain common factors that affect the premium such as the amount and duration of coverage, the type of plan, and choice of riders.
• The premium of a life insurance plan is determined based on certain specific factors like age, gender, lifestyle habits, and occupation. 
• The specific factors affecting health insurance premiums are medical history, BMI, and pre-existing conditions or diseases.
• In the case of home insurance, factors like geographical location, existing safety and security measures, and the general characteristics of the house affect the premium that you would have to pay. 
• When it comes to motor insurance, the factors affecting insurance premiums are the make and model, No Claim Bonus, and the age of the vehicle. 
• For travel insurance, the factors affecting the premium are the destination, the number of travelers and their age, and existing medical conditions of the travelers.