Table of Contents
- What are insurance premiums?
- What affects insurance premiums?
- Outside influences on insurance premiums
- Shopping around for lower premiums
Being self-employed is sometimes a messy and confusing ordeal. It is quite tantalising to pursue more job freedom or seek a career path that you genuinely enjoy. But when switching to self-employment, you tend to run into issues that you previously didn’t know existed. Insurance premiums are one of these issues. Usually, your employer will handle all of this for you but now you need to handle all of the business details on your own. Luckily, we’re here to help, in this article we will go through the basics of insurance premiums so that you are one step closer to becoming self-employed.
What Are Insurance Premiums
Basically, an insurance premium is the cost of the insurance. Whatever amount of money the company charges you for the insurance plan is the insurance premium. The amount of frequency that you need to pay varies drastically on a wide number of factors.
What affects insurance premiums
- The level of coverage offered: Every insurance plan is different and covers different areas to various degrees. Whether it’s car insurance, health insurance, or home insurance you will find different levels of coverage, the broader the insurance the more you will have to pay for the coverage. Depending on what you are insuring and your own personal circumstance, you might consider only ensuring against the most likely risks. For example, if you are near the coast you may want insurance against flooding damage.
- Your personal information: Most of your personal history will affect your insurance premiums for better or worse. Things like medical history, credit score, insurance history, area you live in, personal income, etc. Oftentimes there will be a baseline value for the insurance that is modified using your information. The insurance company performs a risk assessment of how likely they’ll need to pay out and how much they can trust you, this is why new drivers often pay higher rates for car insurance.
- Competition between insurance companies: Like any business, insurance companies need to be competitive with each other. If competition is fierce then they will create deals and reduce premiums in order to attract more customers. Additionally, they will all be targeting specific demographics and target audiences. They will be creating deals and offers for their particular desired customer base. If you fall within their target audience, you may find particularly generous offers for your situation. Make sure that you thoroughly shop around for the best deal for you.
- Actuaries: Actuaries are people hired by insurance companies to perform risk assessments and calculations. They determine the cost to the insurance company and how much should be charged. Using your information, they calculate the chance that you’ll file a claim that they’ll have to pay. If they think that you are extremely likely to file a claim and are a high-risk individual then you may be charged high insurance premiums, in rare cases, you may be denied entirely.
Outside influences on insurance premiums
Just like all other businesses insurance companies are business, they want to make a profit to expand their company. In addition to your personal information and history, other factors may affect the starting rate for premiums. These factors include:
- The companies current profitability: Due to the unpredictable nature of claims, some years will have significantly more claims than average. During times when there aren’t a lot of claims, the company is making really high profits. They may focus on attracting more customers during these times by using lower rates since they can easily afford to do so. However, sometimes a lot of claims will be made, and they will need to pay out a lot of money to their customers. Companies may increase their rates temporarily to make up for these payments.
- Reassessments of an area: If an actuary assesses an area as low risk then they will charge low rates for that area. As time passes areas will need to be reassessed for any changes that have occurred. If the area has become riskier due to a disaster or an increase in crime, then it will be assessed as riskier and a higher premium will be charged for that area.
- Competition between companies: All insurance companies want to make a profit and expand their business. When competing against several other companies in the same field they need ways to stand out from the crowd. This can come in the form of various deals, offering new features, or simply lowering their premiums. For example, if a competitor is raising its premiums to recuperate claims, then another company may lower its premiums in order to try and get some of their customers to switch insurance.
Shopping around for lower premiums
When it comes to insurance you don’t want to pay anymore than you have to. In an ideal situation you never actually need to make a claim, and nothing goes wrong. But you still want the insurance as a safety measure for if anything goes wrong. In order to pay as little as possible for your insurance premiums here are some things to keep in mind:
- Shop around for the best deal: Different companies are trying to appeal to different demographics of people. You are part of some companies desired demographic; you just have to find them. If you find offers that are really appealing to you, you are probably part of their target demographic. Make sure to check in as many places as possible in order to find the best deal possible.
- Improve your credit score: Your credit score is a numerical value used to quantify your credit history. Companies will use your credit score to determine what you qualify for and what they should charge you. The better your credit score is, the better deals you will be offered. You can improve your credit score in a number of ways such as paying your bills on time, paying off any debts you may have, and not applying for a lot of additional credit.
- Check your credit reports for mistakes: This will be significant if you have been keeping track of your spending and earning, such as your receipts and bank statements. If you happen to find any mistakes within your credit reports and provide evidence to dispute them, then you can correct the mistakes and improve your credit score.