Insuranceexamine.com

When you take out an insurance policy of any description you will have to pay monthly premiums for it, but you may not be clear exactly what it is that you are paying. Essentially an insurance premium is the monthly amount that your insurance provider charges to keep your policy active, but the actual rate charged for similar policies and levels of coverage can differ strikingly from one company to the next. This is why most experts encourage consumers to secure quotes from a number of insurance providers before deciding on a company and a policy.

There are a number of means that insurance providers use to calculate the rate of a customer’s premium, with the customer’s likelihood of claiming on the policy being the factor that primarily determines the size of the premium. The information used in deciding the levels is often drawn from available statistical evidence, rather than the particular personal history of a customer, something that can sometimes be rather unfair. An example of this would be of a young man seeking car insurance: he would be likely to be charged a high premium rate, even if his personal driving record is good, simply because statistically young male drivers are a high accident risk. In this situation the young man’s good road record would help to lower the premium somewhat, but he would still be charged at a higher rate than either an older driver or a female driver in the same age bracket.

The majority of insurance premiums are paid either monthly or semi-yearly, and the policyholder has a responsibility to meet these payments on time. Should they fail to do so, the insurance provider has the option of cancelling the policy – a situation usually referred to by the term ‘lapsed policy’. In this situation, should the policyholder meet the outstanding balance, the policy may be made active again or, alternatively, the policy will be allowed to become defunct. It is surprisingly common for customers to forget to pay a premium when it is due, simply because of the length of time between payment cycles – thus a monthly schedule is perhaps best for both parties.