What is an insurance premium and how does it work?

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What is an insurance premium?

An insurance premium is the amount of money an individual or business pays for an insurance policy. Essentially, it’s the price you pay to an insurance company to be covered under their insurance policies. As with other contracts, not paying your premium can result in your policy being canceled.

Insurance companies look at an insurance premium as income, because it is money paid to them for the insurance coverage they provide to the customer. However, these premiums can also be seen as a liability since the insurer must cover any insurance claims that are made against the policy.

What is an insurance premium and how does it work?

How does an insurance premium work?

An insurance provider determines your premium when you purchase and pay for insurance coverage. The price of each insurance premium differs and is determined based on several factors, including the level of risk they believe comes with insuring each customer. This risk assessment by an insurer is done because they are responsible for covering any claims that are made. Some customers are evaluated as a higher risk than others.

Other factors involved in determining the premium include the type of insurance policy you signed up for - auto insurance policy, life insurance policy, health insurance policy - your age, where you live, your claim or accident history, your medical history, and more.

For example, if you have been in multiple car accidents, your auto insurance policy may have a higher premium because you are seen as having a greater risk of making additional claims compared to someone who has a clean driving record.

An insurance premium is typically paid on a monthly, semi-annual or, annual basis. Again, this depends on the terms and conditions of the individual policy.

How are auto insurance premiums calculated?

The price of the premium goes up as the risk increases, and the same is true for auto or car insurance. These policies are usually based on the driver's age, driving record, type of vehicle, claim history, and the amount of insurance coverage. You can look for an auto insurance premium calculator for more insight into the costs.

An experienced middle-aged driver in the countryside will likely have a lower insurance premium than a young teenager living in a densely populated city who just learned how to drive. Why? Again, it's relative to the risk that the insurance company takes on when promising to cover potential claims.

How is the premium for a life insurance policy determined?

A life insurance policy is normally calculated based on your medical history and the age you start your coverage. Other factors include your medical history, the amount of insurance coverage you are looking for, and even financial factors like credit and employment. In general, younger people pay lower premiums than older people for this type of policy. Using a life insurance premium calculator and understanding the types of life insurance policies can help give you a better idea of how much you may pay.

How is a health insurance premium determined?

Health insurance premiums take into account a number of risk factors. These can include your age, your medical history including any pre-existing conditions, your lifestyle including smoking and alcohol consumption, where you live, and how much insurance coverage you sign up for. A health insurance premium calculator is a helpful tool to understand what your premium may cost.

Is insurance premium tax deductible?

Depending on the local law, insurance premium is tax deductible.

What is insurance premium underwriting and what are insurance underwriters looking for?

In general, insurance companies hire professionals known as insurance underwriters to determine their premiums - but what is insurance premium underwriting and what are insurance underwriters looking for?

As mentioned above, insurers look at many risk factors, including age, location, medical history, claim history and more. An insurance underwriter determines risk levels based on your information and decides whether you should be approved for a policy and how much your premium should be. This is known as underwriting.

An underwriter may find it necessary to increase your premium at the end of your insurance policy period if they believe your level of risk has increased. This could be based on the number of claims made during the period, changes in health and lifestyle, changes in the amount of insurance coverage, etc.

How to contact Roojai?

For more information on your insurance premium or to get an insurance policy with Roojai, please contact our Customer Service team at 02 582 8855

Tips to choose the best online insurance

There are a few insider tips we would like to share with you to help you choose the insurance premium according to your needs.

  • No claim bonus - Be careful and thoughtful while driving, at the end of every finished year of driving, your insurance premium will be available for insurance no claim bonus reward or even accumulated discounts or bonuses for careful drivers, who have finished the yearly period without making an insurance claim.
  • Thoroughly choose your insurance premium - Remember, the most expensive is not always the best, as well as the smallest premiums might not cover your every request, choose the most suitable plans according to your needs and health.
  • Choose premiums with countrywide insurance coverage - Whether it is health or car insurance premium, it is important to choose a company, which cooperates with various hospitals and clinics or car repair garages and service centers. The more options available for you, the easier it is to receive assistance and make an insurance claim
  • Annual plans are preferred - It is important to mention that annually paid plans are more wallet-friendly than monthly plans, as annual payment in advance can secure the company's confidence that both parties will follow the insurance policy.
  • Compare insurance plans - Always compare insurance premiums from different companies in order to get the best policy with complete benefits. Luckily it is easy to do online!


Medical history

is information about the insured individual gained by a physician, with the aim of obtaining useful information to formulate a diagnosis and providing medical care.

Accident history

is information about past accidents of the insured, it is relevant while calculating insurance premium for car insurance

Insurance underwriter

is a person, who use computer software programs to determine whether an applicant should be approved. Insurance underwriters decide whether to provide insurance, and under what terms.