What Is an Insurance Premium?

by COUNTRY Financial

If you’re considering insuring something valuable, you’ve heard of an insurance premium. And if you’re reading this article, you’ve likely wondered, ‘What is an insurance premium?’

An insurance premium is the amount you pay your insurance company to keep coverage active. If you have a car, you’re paying a car insurance premium. Buy a home, and you’ll soon be paying a home insurance premium. You get the idea.

How often you pay your insurance premium depends on your agreement with the insurer, but they’re always paid at regular intervals—usually monthly, but sometimes annually or quarterly. If you miss payments, your insurer could cancel your policy and your asset will be without coverage (which could leave you in violation of the law for assets like cars).

What’s the price of insurance premiums?

When it comes to the cost of a policy premium, the main determining factor is risk—that is, the likelihood that you’ll file an insurance claim.

Insurance companies look at things like your personal history and condition of the insured asset to determine how much your insurance premium will cost.

Home insurance premium cost

• Coverage amounts: Adding additional coverages to your home insurance will increase your premium amount. That said, don’t let that stop you from getting the protection you need—always talk to an insurance agent and make sure you’re fully covered. Read about additional home insurance coverages.
• Deductible amount: Your insurance deductible and premium are inversely related—a higher deductible usually results in a lower premium, and vice versa. We’ll discuss deductibles and premiums in the next section.
• Age and condition: To an insurance company, a newer home with modern trappings is less likely to require insurance claims, whereas an older home is more likely to suffer damage.
• Features and characteristics: Things like construction materials and additional features greatly impact your home insurance premium. A brick house, for example, is more resistant to damage than wood; an expensive home theater is expensive to build and to insure, and so on.
• Claims history: If you’ve never filed a home insurance claim, you’ll likely pay a lower premium. Conversely, if you have a long history of claims on previous homes, you could pay more.
• Credit history: Generally speaking, the better your credit history, the lower your premium. If you have a history of missing payments or racking up debt, you’ll likely pay more.

Car insurance premium cost

• Coverage amounts and limits: As with home insurance, adding additional car insurance coverages to your car policy will increase your car insurance premium. And again, as with home insurance, don’t let a higher premium stop you from getting the coverage you need. 
• Driving record and claims history: Been a perfect driver your whole life? Your car insurance premium will likely be less! If your driving history is dotted with tickets or accidents… you’ll probably pay more.
• Vehicle make and model: A fancy sports car will likely be more to insure than a truck because of the nature of the vehicle; the sports car is more likely to be driven harder, which makes accidents more likely.
• Vehicle age: Generally, older cars tend to have lower insurance premiums because their value is lower. They may also lack modern safety features, however, which could offset the premium savings.
• Your location: Certain areas are more dangerous for a car; accidents are more likely in urban cities, vandalism or theft in areas with high crime, etc. These locations all pose an increased chance that you’ll need to file a claim.
• Credit history: Again, it’s about how risky the insurance company perceives you to be. A good credit history will generally result in a lower car insurance premium.

Life insurance premium cost

• Life insurance policy type: Life insurance is a broad term that encompasses several types of polices, all with different premiums. To learn more, read our in-depth overview of life insurance. 
• Age: As you age, the risk of health issues and mortality increases, resulting in a higher life insurance premium.
• Health and life expectancy: Again, it comes down to risk assessed by the insurer. If you have pre-existing health conditions, are a smoker, or have a dangerous job, your life will be more expensive to insure.

Premiums vs. deductibles

What you choose for your insurance deductible will impact the premium you pay for your insurance policy. In general, if you choose a higher deductible, you will have a lower premium, while a lower deductible will result in a higher premium.

Having a higher deductible will shift more of the financial responsibility for a claim from the insurance company to you, reducing the insurer's risk and lowering their cost. If you have a high deductible and have a minor car accident or minimal damage to your home from a storm, you may not even have enough damage to file an insurance claim. Because you’ll be covering more of the cost of a claim, your regular insurance premium would be lower.

Final thoughts

There’s a lot to consider when buying insurance coverage, and your premium is a big part of it; since you’ll likely be paying it each month, it’s the one aspect of your policy you’ll encounter most frequently. It’s important to choose an insurance policy with a premium that fits your budget.

If you’d like to know more about insurance premiums, talk to your insurance agent today—they can help you determine how much coverage you need and answer any questions.

Updated 1-31-25