How Are Premiums Determined?
The financial terms and legal jargon used in insurance can be confusing. People who get insurance policies often get confused about the terms used by insurance agents. Others allow their ignorance to rule and they sign insurance contracts without even knowing some of the important terms that they should know before signing the contract.

On the other hand, some people may put off their insurance plans because they get confused by the financial complexities and decide that they don't want to deal with it. These people may sometimes end up on the losing end because their families and loved ones are not adequately protected financially if anything happen to him/her because they put off getting an insurance policy because of the complexity.

An insurance contract is a contract between the insured and the insurer, the insured being an individual or a company and the insurer referring to the insurance company managing the risk. Since insurance is a form of a contract, it should follow the essential requites of a contract such as consent or meeting of the minds of the parties and a consideration.

Before there can be a meeting of the minds, the insurer or the party who has prepared the contract, should explain the intricacies of the insurance contract to the insurer. Legal experts refer to insurance contracts as “contracts of adhesion” because the contracts have been pre-worded in such a way that the person being insured no longer has a say on any of the provision.

Once the insurance contract has been entered into, the insured now has the responsibility to pay the insurance premium. The premium is the amount to be paid as agreed upon by the insured and the insurer, so that the insurance contract becomes and remains in force. Failure to pay the premium can be fatal because it can mean you lose your insurance coverage.

Various insurance agencies offer different premium rates depending on the policy and the protection offered to the insured. A person who wants to get any kind of insurance, whether for his car, house or life should consult different insurance companies and decide later on as to whom among them can offer him the greatest benefit for the lesser premium.

In auto insurance, the considerations for the amount of premium paid is base don a number of factors including the age and sex of the person, the hobbies, occupation, driving record, vehicle mileage and lots of other factors. Thus, the premium for a 20-something male getting an insurance policy for his sports car would be greater as compared to the premium on the sedan of a 40-year old male. The premium for auto insurance is usually based on statistics, and in this case, the insurance company has a bias against a young man who may be considered an insurance risk because of the common belief that men his age drive faster.

In life and disability insurance, much valueis placed on the persons’ age, sex occupation, hobbies and the risk factor. Thus, the premium for life insurance would be more expensive for those who are considered as insurance risks like people who work in hazardous occupations and people who smoke. Some companies will also do research on your background, where you live, your family history and other factors that may make you a big insurance risk.

An insurance premium can be paid by the insured on a monthly, quarterly, semi- annually or on an annual basis depending on his choice. Paying an insurance premium on an annual basis can be less expensive than paying it on a monthly basis. However, an annual payment can be a big dent on the pocket due to its cost.

Before getting an insurance policy it is best to determine your paying capacity first because failure to pay an insurance policy can cause it to lapse or to be cancelled. The sad thing is that most insurance agents ignore their clients once they have earned their commissions. Because of this, the insured often forgets the due date until the insurance has already lapsed.

It is another story when the time comes for the insured to collect what the insurance company owes him. Since these insurance companies are business entities operating for profit, most of them try to look for causes or faults on the part of the insured so they can avoid paying the insured amount.

Getting involved in a messy insurance claim can be psychologically traumatic for the insured and his beneficiaries. Sometimes, people think that the benefit one gets from an insurance coverage is defeated by the possible headaches that can be brought about by unscrupulous insurance companies. However, majority agree that being covered by an insurance policy does give you a good night’s sleep and certainly peace of mind.