When hiring any insurance, from a Home insurance until a Health insurance, it is essential to know well all the details of the contract. However, the nomenclature used in the insurance world is usually very complex, especially if we are not used to using it. Therefore, it is best, when hiring insurance, to have the advice of professional experts in the sector.
The world of Insurance is complex. Therefore, when hiring any product, it is best to have the services of a good Insurance consultancy to guide us through the process and explain all those concepts that we do not understand. This is the case of Euroteide Insurance, an Insurance consultancy that is located in the south of Tenerife and that, with more than 25 years of experience in the sector, will advise us on the insurance that best suits us and will resolve any doubts that may arise.
What is an insurance premium and how to calculate it
The insurance premium is the price of the same, that is, the cost that the insured and the insurance company have agreed upon. The annual insurance premium will be paid by the policyholder in exchange for the coverage of the insured risk by the insurance company. Thus, the Insurance company will be obliged to comply with the coverage stipulated in the Insurance contract.
Undoubtedly, the insurance premium is a fundamental element of the insurance contract, since it determines the obligation of the policyholder and obliges the insurer to take charge of the agreed coverage.
The amount of the insurance premium It will depend on the type of risk insured, the duration of the insurance contract and the insured capital. In any case, it will be previously set by the Insurance company. You have to know what the insurance premium means and how it is calculated:
- Pure premium: the pure premium represents the value of the insured risk based on the statistics and the technical interest rate attributed. Thus, the probability of suffering a claim must be divided by the average cost of the claims.
- Inventory premium: The inventory premium will be calculated by adding the administration costs to the pure premium.
- Fare premium: the rate premium is calculated by adding the external management expenses involved in the Insurance contract to the inventory premium.
- Total premium: the total premium is the final cost of the Insurance contract, the amount that the policyholder must pay. The total premium is calculated by adding to the rate premium the taxes to be paid, as well as the expenses for the Insurance Compensation Consortium and the Insurance Entities Settlement Commission, among others.
Thus, to calculate the total premium of the Insurance contract, different premiums must be calculated to which certain expenses must be added. It is important to follow the steps in an orderly and clear way to properly calculate the total insurance premium.
Types of Insurance Premiums
There are different types of insurance premiums, depending on the way in which the total premium is paid. The types of insurance premiums are as follows:
- Single premium: the single premium is that insurance premium that is paid by the policyholder in a single payment. Thus, only one payment will be made that will cover the entire term of the Insurance contract. However, this type of single premium is not very common, although it is very common in short-term insurance such as travel insurance or certain automobile insurance.
- Periodic premium: this type of premium is the one that is paid in installments. Typically, the periodic premium is paid by the policyholder on a monthly basis during the term of the Insurance contract. In any case, these types of insurance contracts usually have a duration of one year and, unless the policyholder cancels the contracted insurance policy, the contract will be renewed automatically.
- Fractional premium: the fractional premium is one that is paid in fractional form. Thus, the policyholder will pay the premium for weeks, months or quarters. So what is the difference from the periodic premium? In this case, the insured will not be able to terminate the Insurance contract after each period. This type of premium is very common in health insurance. In the event of a claim, the insurance company may claim from the policyholder the rest of the fractions of the premiums that have not yet been paid.
- Fractional premium: the fractional premium is the one calculated for periods of validity of the Insurance that do not exceed one year. In the event of a claim, the insurance company must pay compensation to the insured and may not demand the payment of the rest of the premium.
How Insurance Premiums Are Paid
The insurance premium must be paid in money or through an equivalent bank document such as a transfer or a check. In any case, the first Insurance premium must be paid at the moment the Policyholder signs the Insurance contract. After this moment, the insurance premium must be paid at the expiration of the policy.
It is important to respect how and when the insurance premium has to be paid, since, in case of not complying with the payment of the same, the coverage will be suspended from the fifth month of non-payment of the premium and the Insurance contract will be terminated on the sixth month of non-payment of the same.
Insurance contracting is an important task and, for those who are not familiar with this world, it can be very complex. Therefore, it is best to have the experience of a good insurance advisory. Euroteide Insurance is an insurance consultancy that has more than 25 years of experience in the insurance sector, so it will be able to guide and inform us about this management.