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What Is an Insurance Premium?

An insurance premium is the price you pay for an insurance policy. Costs can vary based on the type of insurance you buy.
Aug. 12, 2020
Insurance, Life Insurance
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An insurance premium is the amount you pay for an insurance policy. Simply put, premiums are what you pay insurance companies in exchange for coverage. Therefore, when you hear “insurance premium,” think “insurance price.”

You typically pay premiums monthly, semiannually or annually, depending on the policy. Insurers sometimes offer a small discount for bundling your policies or paying your premium annually.

The price of your premium depends on the type of insurance you buy, such as life, renters, auto or homeowners. You may also be responsible for an insurance deductible, which is the amount you pay before the insurer starts covering the costs of a claim.

Car insurance premiums

Auto insurance premiums are often based on your age, driving record, claims history and vehicle, as well as the amount of coverage you buy.

In general, you’ll pay the highest premiums for full coverage, which includes liability, comprehensive and collision insurance. When shopping for a policy, compare auto insurance options to find the best rate.

» MORE: The best car insurance companies for 2020

Life insurance premiums

Insurers typically use your age and medical history when calculating life insurance premiums. Other factors, such as your credit history, the amount of coverage you buy and your employment status, can impact the price.

Among the different types of life insurance, permanent policies such as whole life insurance are the most expensive, as coverage lasts your entire life. In contrast, term life insurance covers a set period of time, such as 10 or 20 years.

» MORE: Get life insurance quotes

Renters insurance premiums

On average, renters insurance premiums are between $15 and $30 a month, according to the National Association of Insurance Commissioners. The price of your premiums is based on specific details, such as the value of your belongings, whether the building has a burglar alarm, and how close the property is to fire protection services. Shop around for renters insurance quotes before buying a policy.

» MORE: What is renters insurance and what does it cover?

Homeowners insurance premiums

The average homeowners insurance premium was $1,211 a year in 2017, according to the latest data from the NAIC. Homeowners insurance premiums are based on a variety of factors, such as the building’s location and value, your credit score, your claims history and the amount of coverage you want to buy.

» MORE: Find the best homeowners insurance