An insurance premium is the cost paid by the policyholder to the insurance company in return for the protection provided.
When choosing insurance, one of the most important things to understand is the premium. The premium determines the amount of money that must be paid to obtain protection that suits your needs. Without a good understanding of premiums, you might end up paying too much or getting less-than-optimal protection. So, before discussing how to calculate it, let's first understand what an insurance premium is.
An insurance premium is the fee paid by the policyholder to the insurance company in exchange for the protection provided. This payment can be made monthly, annually, or according to the agreement in the policy. The amount of the premium is determined based on various factors, such as the type of insurance, coverage benefits, age of the insured, and the level of risk borne by the insurance company.
In addition, the premium also plays a role in maintaining the continuity of insurance protection. If the premium is not paid on schedule, the policy may be deactivated, so the insurance benefits cannot be used. Therefore, it is important to choose a premium that matches financial capability so that protection continues without obstacles.
There are five common types of insurance premiums, namely life insurance, health insurance, car/vehicle insurance, property insurance, and travel insurance.
Here is a complete explanation of the five types of insurance.
Covers the impact of losing a person's or family's source of income due to death.
This type of insurance premium provides financial support to the heirs or the family left behind. Considering, they may experience difficulties after the breadwinner of the family is gone.
This premium plays a very important role in minimizing health-related financial expenses. Not without reason, this type of insurance premium functions to cover the policyholder's health costs. So, when the insured is sick or undergoing treatment, the cost will be covered by insurance.
In addition, another function of health insurance is to minimize unexpected and high medical expenses. Participants only pay a smaller treatment fee and can avoid bankruptcy or losses.
Provides financial protection for policyholders against driving or loss risks, the provisions of which are determined in the policy.
There are two types of car insurance you can choose to protect your beloved car, namely All Risk (comprehensive) insurance and Total Loss Only (TLO).
All Risk or comprehensive car insurance premiums will cover the risk of accidents, loss, vandalism, and damage due to natural disasters.
When the car suffers physical damage due to an accident or natural disaster, this insurance will provide coverage reaching 75% or more.
Meanwhile, the TLO car insurance premium will cover severe damage reaching 75% or more of the vehicle's physical condition due to an accident.
Minor damages under 75% will not be covered by this insurance. Even so, this insurance is still important to minimize expenses when the car is damaged due to an accident.
Provides coverage benefits for policyholders for their property against various risks, such as damage due to floods, fires, and earthquakes.
Provides financial coverage for policyholders while on a trip.
Travel insurance is divided into domestic travel insurance and international travel insurance (overseas travel protection).
Some of the benefits of travel insurance include:
The function of insurance can be seen from two sides, namely from the perspective of the insurance company and the insurance customer, here is the explanation.
From the insured party's perspective, it is actually the same as the purpose of the insurance premium, namely obtaining guarantees, fund equalization, and risk transfer of losses to the insurance party.
From the insurer's side (insurance company) it is as a collection of funds that will later be used to cover customer losses.
The insurance party will also manage the premium payment matters proportionally to the risks to be borne so as not to harm either party under the agreed terms.
You must have wondered how premium calculation is done. So, the amount of premium that must be paid by the customer is the result of multiplying the insurance premium rate by the total insured value.
Insurance Premium Formula = Premium Rate x Total Insured Value
Here is an example of how to determine the insurance premium rate and insured value.
Here are some factors that can change the amount of the insurance premium:
In general, insurance companies have facilities or services to make it easier for customers to pay their premiums.
Usually, companies provide cash deposit, auto debit, credit card, or through Virtual Account facilities.
The method of paying premiums using the account auto-debit service is the preferred way for many customers because it greatly minimizes late payments. Even so, customers are still free to choose the premium payment method that feels comfortable and safe.
Besides premiums, you should also know other insurance terms, such as insurance policies, own risk, and others.
Insurance premiums consist of several components that must be understood by policyholders. These components play an important role in determining the amount of premium that needs to be paid.
Here is a more detailed explanation of the components in insurance premiums:
The basic premium is the amount of money listed in the insurance policy with a fixed amount as long as there is no change in the coverage provided. To determine the basic premium, the insurance company evaluates the risk to the insured or the insured object.
The higher and broader the risk covered, the greater the basic premium to be paid. The basic premium serves as the foundation for all costs associated with insurance coverage.
As the name suggests, the additional premium arises when there is a change in the data of the insured party or due to an expansion of coverage for risks. For example, if a policyholder decides to add coverage for a certain risk not listed in the policy, an additional premium will be charged.
This additional premium is flexible and can change according to modifications or additional coverage requested by the policyholder. It's best to choose additional benefits that you really need only, so it doesn't overly burden the premium.
A premium reduction is a discount or deduction from the premium due to certain conditions. This discount can be given based on various factors, such as no claims in a certain period or special discounts offered by the insurance company.
The company rate is the rate set by the insurance company association. This rate is usually a standard reference in the insurance industry to determine a fair premium amount. The function of the company rate is to ensure uniformity and fairness in premium determination among various insurance companies.
Life is full of uncertainty, and risks such as accidents, illness, or asset damage can happen at any time without warning. Without insurance, the costs to be incurred can be very large and disrupt your financial condition.
By having insurance, you get financial protection that helps bear unexpected costs, so you can live more calmly and focus on living your life. In addition, insurance also ensures that you and your family still have access to health services, vehicle protection, or other guarantees as needed.
If you are looking for vehicle insurance, Roojai is the right choice. Roojai is a trusted car insurance provider with more than 800 partner workshops. Premiums that can be adjusted to your budget and needs make Roojai the right insurance for you.
That concludes the discussion about what an insurance premium is, its functions, the factors that affect premium amounts, and the components in insurance premiums.