How An Insurance Company Determines Your Premiums

Do you want to know how an insurance company determines your premiums? Then the following will help you gain a basic understanding and insight into that process. Knowing this process will help you prepare yourself and give you an idea of what to expect when you are going to buy insurance.

Risk – Determining Factors

No matter the type of insurance you are applying for, the one aspect that every company is particular about is calculating your risk factor. They will look at and explore your life to determine how risky you are to insure.

The insurance companies categorize applicants with certain parameters. For health coverage, your gender, age, occupation, health and lifestyle are main parameters. For car insurance your car type, driving record, frequency of driving, gender, locality, age, and health problems would be considered. For home insurance, the neighborhood, age of the house, its size, its value, your occupation and your credit history would be measured.


Your risk to the insurance companies is calculated with the help of actuaries. Actuaries are people who have certain parameters, based on their research, which they use to determine how risky you are to the company. They create risk brackets by estimating how many will become ill, die, meet with a car accident, and the like using some determining factors. The insurance companies use these risk brackets to classify their applicants. Based on that classification, the premiums would be determined.

The actuaries keep a risk spectrum and pool in your data to find out where you land in that spectrum. The riskier you are the higher will be your premium.

Difference in Premiums

Your premium would differ from company to company and from policy to policy. For the same policy, different companies would quote you different premiums, because each company has its own set of underwriting rules. This is where shopping around becomes essential. Getting multiple insurance quotes and comparing them before choosing one is a mandatory step to land an affordable policy.

Controllable Factors

While most of the determining factors (age, gender, etc.) are not under your control, there are few areas you can control and influence how an insurance company determines your premiums. Leading a healthy life, following a low-risk lifestyle and driving safely are some of the steps you can follow to get a lower premium.