What is an insurance premium?
An insurance premium is the amount you pay for insurance coverage, either in monthly, semi-annual, or annual payments. You may also hear people refer to their insurance premium as their insurance rate. Generally, insurance premiums vary based on the type of policy, what the policy covers, as well as the policyholder's claims history and other factors specific to them.
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How do insurance premiums work?
Payment methods: Insurers typically offer several ways to pay your insurance premium, including by check, online, over the phone, or through automatic payments.
Payment frequency: Most insurers allow for monthly payments, though you may also have the option to pay the total premium upfront. For example, if you have an auto insurance policy that renews every six months, you may opt to pay the entire six-month premium upfront instead of paying month to month.
How it works: In exchange for paying your premium, your insurer provides coverage to reduce your own personal risk.
Here are a few ways your premium dollars on different types of insurance policies pay to protect you:
- Car insurance premiums: Helps lower your financial risk of getting into or causing an accident by paying for injuries or property damage you're responsible for.
- Homeowners insurance premiums: May pay to rebuild your home and replace your possessions if your house is damaged or destroyed due to a covered peril, such as a fire, severe weather, and other risks.
- Renters insurance premiums: Pays to repair or replace your belongings if they're stolen or destroyed due to a covered peril, such as a fire.
- Life insurance premiums: Assumes part of the financial risk to your family if you were to die unexpectedly by paying out a death benefit to your beneficiaries.
- Health insurance premiums: Pays for some or all your medical bills, including office visits, diagnostics, hospitalizations, and other medical services.
- Pet insurance premiums: Pays for a portion of your vet bills when your pet is sick or injured.
Important note: For any type of insurance, not paying your premium may result in your insurer canceling the policy and you losing your coverage.
What factors affect a policy's insurance premium?
Exactly how your insurance premium is calculated depends on the type of policy.
Factors that affect vehicle insurance premiums
With vehicle insurance (such as auto, RV, motorcycle, etc.), insurers may look at several factors to determine your insurance premium, including:
- Age
- Coverages & deductible amounts
- Claims history
- Make and model of vehicle
Pro tip:
Progressive also considers how safely you drive when you enroll in Snapshot, a telematics-based car insurance program that personalizes your rate based on your actual driving.
Factors that affect homeowners insurance premiums
For homeowners insurance, insurers typically consider things like:
- Location
- Roof age & type
- Home age & type
- Coverage selection
Factors that affect renters insurance premiums
Renters insurance premiums typically factor in your:
- Location
- Residence type (house, apartment, etc.)
- Coverage & deductible selection
- Value of personal property
Factors that affect life insurance premiums
For life insurance, premiums may be driven by factors like:
- Age & sex
- Lifestyle
- Your overall health
- Tobacco use
- Policy type
- Coverage amount
Factors that affect health insurance premiums
Here are five factors that health insurers may consider:
- Age
- Location
- Tobacco use
- Plan type
- Individual or family coverage
Factors that affect pet insurance premiums
Pet insurance rates are typically based on your:
- Location
- Pet's age & breed
- Deductible & reimbursement level
What's the difference between a premium and a deductible?
A premium is the amount you pay your insurer in exchange for coverage, whereas a deductible is the amount you pay before your insurance pays out a claim.
Depending on the type of coverage or policy, you may be able to adjust your deductible. For example, auto insurance deductibles apply to comprehensive and collision coverage, which you can raise or lower. Lowering your deductible lowers your out-of-pocket cost for a claim but raises your insurance premium (and vice versa). Learn more about how deductibles work with different types of insurance.
Why do insurance premiums go up or down?
In general, insurance premiums increase when the risk of insuring you or your property goes up. This may be due to a recent claim, increased risks in your area, or other factors.
With car insurance, one common reason for a rate increase is getting a speeding ticket. Insurers consider speeding tickets and similar violations as signs that you may be more likely to have a claim and may increase your rate to offset the added risk. Learn more about why car insurance rates go up.
Pro tip:
Some types of insurance have more consistent premiums: Standard term life and whole life insurance policies typically have a fixed premium that doesn't change while your policy is active.
How can I lower my insurance premium?
There are a few general ways you may lower your insurance premium, such as:
- Bundling: Many insurers offer a bundle discount for buying vehicle and property insurance together, such as home and auto.
- Increasing deductibles: If you have a deductible on your auto, homeowners, or other insurance, you may be able to lower your premium by increasing it.
- Shopping around: Switching insurers can save you more. If you're looking to lower your auto insurance, you can easily compare rates from Progressive against competitors.
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