Which factors are taken into consideration when an insurance company determines the premium rate for a whole?

The amount you'll pay for car insurance is impacted by a number of very different factors—from the type of coverage you have to your driving record to where you park your car. While not all companies use the same parameters, here's a list of what commonly determines the bottom line on your auto policy.

• Your driving record – The better your record, the lower your premium. If you've had accidents or serious traffic violations, it's likely you'll pay more than if you have a clean driving record. You may also pay more if you're a new driver without an insurance track record.
• How much you use your car – The more miles you drive, the more chance for accidents so you'll pay more if you drive your car for work, or use it to commute long distances. If you drive only occasionally—what some companies call “pleasure use"—you'll pay less.
• Location, location, location – Due to higher rates of vandalism, theft and accidents, urban drivers pay a higher auto insurance price than those in small towns or rural areas. Where you park your car (on the street or in a secure garage) and anti-theft features may impact the bottom line as well.

Other factors that affect premium price that can vary from one area or state to another are: cost and frequency of litigation; medical care and car repair costs; prevalence of auto insurance fraud; and weather trends.

• Your age – In general, mature drivers have fewer accidents than less experienced drivers, particularly teenagers. Insurers generally charge more if teenagers or young people below age 25 drive your car.
• Your gender – Statistically, women tend to get into fewer accidents, have fewer driver-under-the-influence accidents (DUIs) and—most importantly—have less serious accidents than men. So all other things being equal, women often pay less for auto insurance than their male counterparts.
• The car you drive – The cost of your car is a major factor in the cost to insure it. Other variables include the likelihood of theft, the cost of repairs, its engine size and the overall safety record of the car. Automobiles with high quality safety equipment might qualify for premium discounts.

Insurers not only look at how safe a particular vehicle is to drive and how well it protects occupants, but also how much potential damage it can inflict on another car. If a specific vehicle model has a higher chance of inflicting damage when in an accident, an insurer may charge more for liability insurance.

• Your credit – Similar to your credit score, your credit-based insurance score is a statistical tool that predicts the likelihood of your filing a claim and the likely cost of that claim.
• The type and amount of auto insurance coverage – The limits on your basic auto insurance, the amount of your deductible, and the types and amounts of policy options (such as collision) that are prudent for you to have all affect how much you'll pay for coverage.
• NEVER race or religion – It is illegal to use race or religion to set insurance rates.

Next steps: Learn how to save money on your auto insurance premiums.

How The Cost Of Life Insurance Is Determined

The premium rate for a life insurance policy is based on two underlying concepts: mortality and interest. A third variable is the expense factor which is the amount the company adds to the cost of the policy to cover operating costs of selling insurance, investing the premiums, and paying claims.

Mortality

Life insurance is based on the sharing of the risk of death by a large group of people. The amount at risk must be known to predict the cost to each member of the group. Mortality tables are used to give the company a basic estimate of how much money it will need to pay for death claims each year. By using a mortality table a life insurer can determine the average life expectancy for each age group.

Interest

The second factor used in calculating the premium is interest earnings. Companies invest your premiums in bonds, stocks, mortgages, real estate, etc., and assume they will earn a certain rate of interest on these invested funds.

Expense

The third consideration is the expenses of operating the company. The company estimates such expenses as salaries, agents' compensation, rent, legal fees, postage, etc. The amount charged to cover each policy's share of expenses of operation is called the expense loading. This is a cost area that can vary from company to company based on its operations and efficiency.

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• Business insurance
• 8 factors that influence the premium

1.    The type of business you run

A massage therapist does not have the same underlying risks as a manufacturer who sells heavy machinery. Nor are the risks incurred by a plumber the same as those incurred by a real estate agent.

It’s therefore important that you clearly describe the nature of your professional activities to your insurer.

2.    The value of the items used for professional activities

What items do you use for your professional activities? Computer equipment, camera, furniture, books, tools, etc.

List the exact value of your property to help you choose the right coverage – not too high, not too low.

The higher the coverage, the higher the premium. On the flip side. If you opt for lower coverage, the compensation will be smaller in case of loss, but you’ll be paying a lower premium.

3.    The building or your place of work

Your insurer evaluates certain building features, including its age, location and construction material to establish the coverage required.

If you own or co-own the building, your insurer will also evaluate the cost of rebuilding. Note that the coverage amount for the building does not correspond to your mortgage – which generally factors in the value of the land – but rather how much it would cost the rebuild.

The building’s features taken in account by your insurer:

• Construction material used: wood, brick, aluminium or concrete
• Building age and size
• Building location: city or country? Residential, commercial, new or historic neighbourhood?
• Heating system (electricity, gas, oil)
• Reconstruction costs, including leasehold improvements, in case of total loss. Note, this is not the same amount as the market value, municipal evaluation or amount of your mortgage.

4.    Fire alarm system

Your insurer will also evaluate the fire alarm system in the building or in your workplace, using certain analysis criteria.

• In case of a fire, how far is the nearest fire hydrant?
• Proximity to the fire station?
• Is your building equipped with a sprinkler system?

5.    Your claims history

Your insurer will take into account the number and type of claims you’ve already made. He’ll also factor in the crime rate (theft, vandalism) and fire stats in the sector where your building or place of work is located.

6.    Your policy and coverage

Your premium reflects your choice of coverage:

• Type of policy (Named Perils or All Perils)
• Endorsements (additional coverage) added to your policy

7.    Deductible

The deductible is the amount you accept to pay in case of loss. The higher the deductible, the lower the premium.

The deductible can vary significantly, depending on the value of the items covered or the additional protections chosen. Choose the amount of the deducible based on what you would be able to pay in case of loss.

8.    Credit record

Your credit record may be part of the factors used by your insurer to establish your insurance premium.

For more information on the business insurance market, consult our blog on the subject.

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