How Are Insurance Premiums Calculated?

Your insurance premiums, or the amount you pay per month for your insurance coverages, can be confusing. How is your premium number calculated? Why did your amount go up last year? How can you lower that number?

We’re here to kick that confusion to the curb by breaking down how premiums are calculated, what affects them and more.

Understanding Insurance Premiums

To understand why your insurance premium costs what it does, you need to understand its purpose. Your insurance company collects premiums from its customers in exchange for coverage and pools that money all together. When someone files a claim, funds from that pool are used to help pay out that claim so the customer can cover the cost of their loss and return their life to normal.

If your insurance company has to pay out a lot of claims over the course of a year, you might notice a rise in your premium when you renew your policy. That’s because if a company has to pay out more than they’ve collected from the pooled premiums, they’ll need to pool more money in order to remain a functioning business and be able to pay out other claims.

Individual Factors on Insurance Premiums

The number of claims and dollar amount paid out for those claims aren’t the only factors in your insurance premiums. In fact, a good portion of your premium’s cost has to do with you. Here’s what they are:

Your driving record. If you’ve made a lot of insurance claims in your life, you could experience a higher premium. On the other hand, if you’ve never made a claim, you’ll likely have a lower premium. The lower the insurance risk your company finds you, the more likely you’ll have a lower insurance premium.

Your insurance policy. It’s common knowledge that the more insurance coverage you have (lower deductible, higher coverage limit, etc.) the more your insurance premium will be. Your American Family Insurance agent is always ready to help you find the right combination of deductibles, coverages and premiums to make protecting what matters affordable.

Other Insurance Premium Factors

Unfortunately, there are things that influence your insurance costs that are out of your control. Like the number of claims and the amount paid out by your insurance company, this might cause your premiums to go up or down:

Economic factors. There’s not a business in the world that is immune from the effects of the economy. Strong, weak or stable, the state of business in the United States can always impact insurance costs.

Lowering Your Insurance Premiums

Aside from the obvious lowering of your coverage and protecting less of your home, car or other important part of your life, there are ways to save on your insurance! Here’s how:

Bundle your coverages. If you’ve got insurance policies stretched across two or more insurance companies, you could be missing out on savings. If you bundle multiple insurance coverages with American Family, we’ll give you a discount. Plus, it’ll be much easier to manage your insurance policies, documents and bills in one place with My Account or the MyAmFam app.

Other discounts. There’s no shortage of discounts on American Family Insurance products. Whether we hand off savings for being a loyal customer, having a safe teen driver on your policy or for switching from one insurance company to ours, we’re happy to make your protection as affordable as possible.

Looking for more coverage or a more affordable insurance plan? American Family agents are your key to protecting everything you’ve worked so hard for at an affordable price. Get in touch today.

Related Topics: Insurance Terms , Insurance Needs