General insurance How Insurance Companies Calculate Insurance Premiums

[Jasz]

The cause of risk is the probability of an event happening and its severity. The riskier the event, the higher the probability of it happening. Insurance companies use a variety of methods to calculate insurance premiums based on risks. For example:

a. A car insurance company may use a statistical formula to determine how much they will charge you for your car insurance policy. This formula is based on how many other people in your area have similar cars and how often those people were involved in accidents or stolen vehicles.

b. A homeowner's insurance company may use a statistical formula to determine what they will charge you for your homeowner's policy. This formula is based on how long you have lived in your house, how many bedrooms there are, what kind of neighborhood it is (e.g., urban vs. suburban), and whether or not it has been remodeled recently (i.e., if it has been updated with new appliances).

c. A marine insurance company may use an actuarial model that takes into account age, gender, location (e.g., ocean vs land), exposure to weather conditions such as hurricanes and floods, etc.

 

[sincerem]

That's absolutely true with your points. Insurance companies aren't charity given entities or Enterprise, they came for business. Insurance is a win win business for the both parties. If someone goes into homeovers insurance, health/life insurance, car insurance etc, the risk will be calculated first before issuing out the cost of subscribing for such premium plan for the insured.

Insurance companies wouldn't offer same premium price for someone who is battling with serious illness to someone who isn't threatened with a serious health disorder when it comes to health/life insurance policy plan. Insurers are very much careful with their premiums to avoid being on floating loss given out insurance packages to their customers. That's business they're operating, they will always work to stay at the safer side to make profit and not loss. Same too, goes to the insureds, they want to invest and secure their future and not lose it all, that's why it is a win win investment for both parties.