A premium is the amount you pay an insurer for an insurance cover. The premium amount is captured in the policy document.
Each insurance company makes its own commercial decisions when deciding how much to charge each person who wants to cover certain risks. So it could be the same risk, such as comprehensive insurance for a private vehicle, but you will find that the cost varies per insurer.
Insurers rely on data to price premium and therefore this may vary from person to person even if the risk is similar. For example, when insuring your vehicle, the insurer will review your claims history, the value of the car, or take into account if you have been at fault in other accidents or penalised for other traffic offences.
The insurer will also consider the drivers age and sex, this is because some demographics are statistically more likely to make a claim than others.
Your premium is likely to change each time you renew your insurance, even if your personal circumstances don’t appear to have changed.
This is because premiums are affected by many factors, including the cost of doing business and changes to the way your risk has been assessed. Premium prices can either go up or down based on the circumstance.
Premiums are a cost item in any budget and therefore it is important to be prudent about managing the cost without exposing yourself to risk.
Most insurers offer a discount to customers who pay their annual premium upfront, rather than in monthly installments, especially for general insurance, which is annual; such as motor insurance.
This is because annual payment has lower administrative costs compared with monthly payments, and insurers are likely to get better return on investments. Some insurers charge an additional administrative fee while others charge a slightly higher premium.
Under a monthly installment arrangement, if a claim is lodged at any time during the policy period the remainder of the annual premium will still need to be paid.
One way to reduce the amount of the premium you pay is to agree to take on a certain proportion of the risk by increasing your excess. Many insurance policies allow you to specify an excess. In general, a higher excess will mean you pay a lower premium.
Insurers will offer you a cheaper premium if you take steps to lower your risk. You may receive a discount if you installed a car alarm and car tracking system in your vehicle to protect against theft; you may receive a discount if you install smoke detectors in your building to protect against fire.
You can also ask your insurer about what you can do to lower your premium without compromising cover.
Each insurer will offer products that differ from those offered by other insurers, with variations in the coverage, the terms and conditions, exclusions and costs
Some insurers may offer discounts such as no claims discount or if you have more than one policy with the same company.