Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Jan 21, 2022

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Here's What You Need to Know

  • Insurance companies collect premiums from their customers in exchange for coverage and pools that money altogether
  • Age, coverage types, coverage amount, personal information, and actuary tables are some of the general factors insurance companies look at when calculating a premium 
  • Home insurance, life insurance, and auto insurance all consider different things – on top of the general factors – when calculating premiums

A lot goes into an insurance company to determine a premium. There are many factors that have to be considered and calculated. It is also not just the insuran

determine my premium

 
 

ce company that is involved in the process. There are adjusters and actuaries involved as well. 

On top of having to go through different processes, different locations are considered as well. For example, car insurance in Jacksonville, FL will not match car insurance in Omaha, NE. A healthy, black male will not have the same life insurance premium as an unhealthy, white female. 

Make sure your insurance company is properly determining your premium. Enter your ZIP code and get a free quote today. 

How is a premium determined? 

Your insurance company collects premiums from its customers in exchange for coverage and pools that money altogether. When someone files a claim, funds from that pool are used to help payout that claim so the customer can cover the cost of their loss and return their life to normal. 

Insurance companies use mathematical calculations and statistics to calculate the number of insurance premiums they charge their clients. According to Investopedia, insurance companies look at multiple different factors when calculating your premium. 

First, they look at your age. Age is important because it is parallel with the likelihood of you actually needing insurance. Younger people are less likely to need medical care, so their premiums are generally cheaper. Premiums increase as people age and have a higher risk of needing medical services. For auto insurance, insurance is more expensive for younger drivers – they are still working on their driving skills. Older drivers are also likely to have higher premiums because they tend to have slower reflexes. There are also different driving laws for seniors

Next, insurance companies will look at the type of coverage you are shopping for. The more comprehensive coverage you get, the more expensive it will be. 

Insurers will look at the amount of coverage you’re shopping for. The less coverage you want, the cheaper your premium will be – no matter what you are insuring: yourself, your vehicles, home, etc. 

Companies will collect your personal information to help determine a premium for you. Depending on the type of insurance you are shopping for, the insurance company may look over your claims history, driving record, credit history, gender, marital status, lifestyle, family medical history, health, smoking status, hobbies, jobs, and where you live. 

Lastly, they will consider actuarial tables. Actuaries will assess the risk of financial loss to predict the likelihood of an insurance claim. An actuarial table will be provided to the insurance company’s underwriting department and they will use the input to set policy premiums. 

The three key people involved in setting your insurance premium include an actuary, underwriter, and adjuster. 

An underwriter chooses who and what the insurance company will insure based on a series of assessments. The underwriter will assess the risk of the policy coverage that the client requested and look for proactive solutions or alternative coverages that may reduce or eliminate the risk of future claims. 

Adjusters inspect the damage to determine how much the insurance company should pay for a loss, after a loss. They will gather information gathered by a variety of investigators as needed and develop a set of recommendations for the payout. Their insights is given to actuaries to help inform their understanding of which attributes of risk are predictive of loss. 

An actuary uses a number of data set to establish benchmark rates for the policies to ensure the company can fulfill its promise to pay in the event of an insured loss. They also track payment statistics to ass the insurance company’s ability to pay its claims and forecast the potential financial impact of catastrophes. 

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Home Insurance vs. Auto Insurance vs. Life Insurance

The above factors are generally what insurance companies will look for to determine your premium. Each insurance company will offer you a different quote because each company also has their own criteria they add to the general criteria. As aforementioned, it also depends on the type of insurance that you are shopping for. Home insurance will consider different things compared to auto insurance. 

Things considered for home insurance include: 

  • Weather in your area
  • Sewer backup problems in your area
  • Your area’s crime rate 
  • Home’s distance from a fire hydrant and fire station 
  • Value of your home 
  • Your insurance history 

Some factors considered for auto insurance include: 

  • Theft statistics in your area
  • Statistics and safety features of your car
  • The make, model, and year of your car 
  • The way you use your car – going to work or personal purposes 
  • Number of driving offenses you have – including at-fault insurance claims made in the past
  • Number of years you have been driving 

Factors that are considered for life insurance are the following: 

  • Age and gender 
  • Medical records
  • Personal habits – tobacco/alcohol consumption 
  • Medical history 
  • Profession 
  • Policy term 
  • Lifestyle choices
  • Obesity 

What is the difference between written premiums and earned premiums? 

The biggest difference between written premiums and earned premiums is who they are for, or serving. Written premiums is the number of insurance premiums you need to pay for insurance coverage written during the accounting period. An earned premium is the number of insurance premiums that an insurance company has earned by offering insurance to clients against different risks during the year. 

Find your perfect written premium. Enter your ZIP code and get a free quote today.