Understanding your premium will make you a more informed consumer when shopping for an insurance quote. Learn more about how your premiums are calculated here.
Premiums are a monetary reflection of the risk the insurer is taking in issuing you a policy. In other words, your premiums represent how likely the insurance company thinks you are to file a claim. High-risk populations will thus get a higher insurance quote than lower-risk populations. Every insurance company has developed a complicated mathematical formula, called an algorithm, to determine a person's claims risk.
Risk assessment centers on an analysis of statistical trends. These trends will directly influence your insurance quote. Insurance companies hire people to analyze mountains of data to identify certain trends. For instance, an auto insurance quote for a man will be higher than for a woman with an otherwise identical background because men are statistically more likely to speed and get involved in accidents. Similarly, people with bad credit usually represent a higher claims risk, which is why your insurance quote will be higher if you have a poor credit score.
Pooling risk refers to the fact that a certain portion of your premium dollars goes toward the cost of insuring other people. This is what makes insurance work. If everyone had to carry his/her own risk, your insurance quote would be sky-high, and the risk of driving, buying a home, starting a business, etc. would be prohibitive. Risk pooling makes insurance work by spreading the risk out among many people. For example, your auto insurance quote is probably a little higher because of young men's tendency to drive fast and have accidents. You pick up some of the risk and the cost for the riskier elements of the pool.
The factors that influence your premiums and insurance quote will vary by the type of insurance for which you are applying. For example, for a home insurance quote, your insurer will want to know things like the size of your home, the local building costs, the natural disaster risk, etc. For an auto insurance quote, you will likely be asked about your age, gender, driving record, vehicle type, marital status, etc. Check out our Insurance Quote FAQ page if you have any questions.
