Insurance premium

How it works

Insurers price premiums around the risk and cost of covering you. Personal factors can include your claims history and where you live, plus your driving record and where you keep the car for auto coverage. An insurance score, a rating meant to predict how likely you are to file a claim, can also play a part, and choosing a higher deductible generally lowers the price.

Premiums can change at renewal even when nothing about you has changed. Wider costs feed into pricing, including labor and materials for repairs, inflation, damage from severe weather, and reinsurance, the coverage insurers buy for themselves. For job-based health coverage, you and your employer may each pay part of the premium, usually on a monthly, quarterly or yearly schedule.

Comparing premiums is most meaningful when the coverage and deductibles match. Getting quotes from several insurers, asking about discounts, and weighing a higher deductible against your savings are common ways to manage the cost. The tradeoff is that a lower premium can mean paying more out of pocket when a claim happens.

Related terms

Sources and further reading

• NAIC: Why are my insurance premiums increasing?
• U.S. Department of Labor: Glossary of health coverage and medical terms

Examples are illustrative and focus on U.S. personal finance. This page is educational, not individual financial, investment, tax, or legal advice. Read our editorial approach or report a correction.