Insurance isn’t a glass of water that you can drink in one day but in fact, a large ocean. Thus, insurance experts are the ones to whom everyone looks up to understand it. But not all can access the services of an insurance expert, however, every individual has at some point in their life purchased some form of insurance coverage—be it motor, health, travel, commercial or even life. Here’s when it becomes necessary to understand insurance and its terminologies. While the internet has a large repository of information, if used well, it can be your best friend.
In this article, we discuss the most critical aspect of insurance, i.e., the premium.
What is general insurance premium?
To understand what is general insurance premium, in its simplest form, it is the price that you, as a policyholder, pay to obtain insurance coverage. Since insurance plans are a contract between you and the insurance company, the premium paid for it is the consideration for such contract.
What are the factors that impact general insurance premiums?
The premium is a critical factor that most buyers pay maximum heed. However, it shouldn’t be the only factor in consideration. Here are some of the elements of your general insurance policy that impact the premium amount:
- Personal information
Your age, residential location, lifestyle, annual income, family size, etc. are some of the factors that are verified when buying a policy. Based on the type of insurance cover, these factors determine the premium amount. For instance, some of the above factors may not have much to do with a motor insurance policy but the same is accounted for when offering a health insurance coverage. Hence, based on the type of insurance plan, personal factors impact the premium of your policy.
- Type of insurance coverage
A simple analogy to understand insurance coverage is like a restaurant menu. The more food you order, the higher is your restaurant bill. Similarly, the more coverage you opt for, the higher will be your premium. Different insurance plans have different coverages. Based on the type of insurance plan and then followed by the type of insurance coverage, the premium is decided upon.
- Quantum of insurance coverage
Not just the type of insurance policy impacts the premium, but also the amount of coverage you seek. Since higher coverage means higher risk for the insurance company, a result of it is direct impact on your premium amount.
- Additional policy features
Once you have opted for a specific type of insurance plan, you have the option to even buy optional policy features. These optional features are known as add-ons and directly impact the premium. The analogy remains the same—the more the insurance coverage, higher is the premium cost of it.
Who determines insurance premiums?
There is no one answer to this question of who determines the premium. The regulatory body, Insurance Regulatory and Development Authority of India (IRDAI) is the sole body governing insurance sector in India. While the regulator lays down the framework of operation of insurance plans, it is the insurance companies that determine the premium amount. Actuary is a designation in an insurance company that studies and analysis the probability of every possible risk that a policyholder faces and taking the probability of each event and its consequent risk into account, determine the premiums. However, in some instances like third-party motor insurance covers, it is the regulator who fixes and revises the premium so that the law can be complied by all. You can visit the official website of IRDAI for further details.
While premium is not the only factor that you must consider when buying a policy, it is a significant factor to keep in mind. A premium calculator is a nifty tool that can aid you in the policy decision process. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.
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