Insurance Term of the Day: Premiums
One of the definitions of premium (according to Google) is “something given as a reward, prize, or incentive.” The definition of premium as an insurance term is “an amount to be paid for an insurance policy.” Do you see how that could be a little confusing to someone who doesn’t know much about insurance?
“Thanks for choosing *Insert Insurance company name here*. You’re an ideal driver for us! Because of your great driving record, your safe car, and the low accident rate in your neighborhood, we’ve calculated your premium to be $500 for the first year.”
“My premium?! Oh my gosh! Thank you so much. You can write that check out to Amy Falls.”
“What? Ma’am, I don’t think you’re. . .”
“I knew purchasing that car was a great idea.”
“Ma’am, we’re not paying you, uh, you’re the one paying us. . . you know, just in case something happens to your car and we’ve got to cover the damages.”
*She gasps, followed by a pause.* “Oh.”
Amy Falls is a made-up name, but with the character’s cluelessness, her name could easily be replaced with mine.
Before purchasing your insurance, the insurance company will quote your policy. This means they are calculating how much you will need to spend to get the proper coverage for whatever you are insuring. There are multiple factors that are used to decide how much your premium will be. The cost depends on what kind of coverage you are wanting, where you live, your driving record, how far and how often you drive, your car, your credit history, your age and gender. These factors play a role the likelihood that the company will have to pay out on your behalf.