# The Insurance Premium – The Good, The Bad and The Why

No matter what type of insurance you have, it is not free. A company provides insurance coverage. They take on the risk of the insured’s assets. You become an insured when you purchase insurance. The contract between you and the insurer is called the insurance policy.

The premium you pay when you “buy” insurance is determined by many factors. The premium for health insurance is determined by your age, health, and the number of people in your household. Because health insurance is so different, we won’t be discussing it here. There are too many variables. It makes my eyes glaze over. We’ll also discuss life insurance later.

In this discussion, I will be focusing on premiums for home and auto. The actuarial tables are a collection of statistics that determine the premium. This is the price you pay to insure your vehicle. These “tables” are mathematical formulas that take into account the item being insure, its use, longevity, how long it will be owned or how old it is, and the original value. The policy’s author is responsible for spreading the risk of loss or damage to the insured item amongst other like-kind items, also known as a “pool”.

An auto policy will have some premium based on you being a safe driver. Your occupation may also play a part. Age could also be considered. All of these elements are related to the risk that the company takes by insuring your property and/or you.

The premium paid is only a fraction of what the risk is worth. You might be one of those people who believes that insurance companies “get rich off their premiums”.

Let’s assume your annual auto premium is \$2,000 for full coverage. You are at fault for an accident one day. Your vehicle damage is valued at \$3,500. The damage to the vehicle of the other man is \$4,000. Your vehicle damage is valued at \$3,500 and the damage to the other guy’s vehicle is \$4,000. Both the driver and passenger in your car were injured and have claims totaling over \$3,000 each. Quick total? \$13,700+. Oh, and what if you are sued? Your defense costs are covered by the company, which will hire you a lawyer. The premiums you pay are only a fraction of the amount that the company has to pay. Your insurance company may have taken some premium dollars and managed to invest them wisely. These investments also provide income to cover losses and claims.

Each state requires that all insurance companies operating in the State have a certain level of solvency. They require that they make a profit, make money, and have financial stability in order to be permitted (licensed to do business). They are watched closely by the states and policy holders lose a lot if they fail. While it’s fine to shop for low premium rates, you should also inquire about the financial health and stability of the company that you choose. You can check the financial health of your company by contacting Standard and Poors or A. M. Best, which are two financial service companies that assess the financial strength and stability of other companies. That will be discussed later.

Finley Keller has been in the insurance business for nearly 30 years. She started as an agent licensed with a CLU and then moved into claims. Auto, homeowner, worker’s compensation and other policy types that are liability-only. Material and casualty.

The last ten years of her life were spent working in SIU (Special Investigative Unit), which specializes in fraud detection. She was the manager of SIU for four years, and was responsible for fraud cases and training employees to comply with state regulations. She is a former member of NCFIA (Northern California Fraud Investigators Association).

Through the American Educational Institute, Inc., she is a Senior Claims Law Associate.