What is the definition of insurance premium? How are insurance premiums determined?
When insuring their own life, property or responsibility, people often face a number of features, not fully understanding what they are contributing for. More often they are concerned with the question of what is the insurance premium, according to what formula its amount is calculated and whether it is included in the total payment. By purchasing insurance premium definition, insuring personal life or risks associated with lending, a citizen pays a certain amount, the value of which will depend on the final payment in the event of an insured event.
What is an insurance premium?
In simple words, the insurance premium is the amount of money paid by an individual or legal entity of the insurance company, wishing to insure certain risks of property or intangible nature. Only in case of receipt of money on the settlement account of the insurer, the policy comes into full legal force. Immediately from this moment the insurance company undertakes to compensate the injured person for the amount due upon the occurrence of the insured event.
The insurance premium is a paid nature of the insurance transaction, which is concluded between the insurer and the insured. In the legal definition, it means the fee for the service provided by the insurance company to the beneficiary under voluntary or compulsory insurance. The premium is paid by money or other property assets, for example, bills or shares.
With a fixed rate
In property insurance, fixed or permanent insurance premiums are applicable. The contributions paid by the insured person do not change over time but remain constant. Immediately it is worth noting that absolutely fixed contributions do not exist, because the contract is mainly for one year, after which the amount of the insurance premium can be recalculated.
The in-kind premium is characterized by the fact that contributions are constant only for a clearly defined period of time. Subsequently, they can be adjusted in one direction or the other depending on the risk behavior or to cover the loss growth of the company. For example, people with age are at greater risk, and therefore the fee for the insurance will increase each year because the probability of occurrence of the insured event increases as the aging insured person.