When taking out insurance, one of the most important concepts to understand is the premium . This is the price the insured pays to the insurance company in exchange for the coverage specified in the policy.

The premium not only covers the insured risk but also includes surcharges, taxes, contributions, and fees , which can influence the final cost of the insurance. In this article, we will explain in detail what an insurance premium is, how it is calculated, what factors affect it, and what types exist.

What is premium in the context of insurance?

The premium is the price of insurance that the policyholder pays to the insurer to keep the policy active. This payment allows the company to assume the risk and provide coverage in the event of a claim.

Premium components

The total premium amount is not only based on the risk covered, but also includes other additional concepts:

1. Pure or risk premium: It is the amount calculated based on the probability of a claim occurring.
2. Administration and management expenses: Operating costs of the insurer.
3. Surcharges: They may include safety margins for the insurance company.
4. Taxes and contributions: In Spain, insurance is subject to taxes such as Insurance Premium Tax (IPS).

Practical example: If a professional liability insurance policy has a total premium of 1.000 euros, that amount will include the insured risk, administrative expenses and the corresponding taxes.

How is an insurance premium calculated?

The premium calculation is based on various factors that determine the level of risk associated with the policy.

1. Risk assessment

Insurers look at multiple variables to determine the likelihood of a claim occurring. The higher the risk, the higher the premium.

Key factors in risk assessment:

• Type of insurance contracted (civil liability, life, automobile, health, etc.).
• Profile of the insured (age, profession, accident history).
• Coverage and insured capital (higher coverage means higher premium).
• Geographic scope (some areas have a higher risk of accidents).

Example: An experienced architect with no prior claims will pay a lower premium than a newly qualified architect with previous claims.

2. Payment frequency

The premium can be paid in different ways:

• Single premium: The entire amount is paid in a single payment.
• Periodic premium: It is paid monthly, quarterly or annually.

Typically, periodic premiums carry a surcharge compared to a single premium.

Example: A civil liability insurance policy with an annual premium of 1.200 euros could cost 110 euros per month if monthly payment is chosen, adding up to a total surcharge of 120 euros per year.

3. Bonuses and surcharges

Insurers apply bonuses to policyholders with a good record and surcharges to those with a higher accident rate.

• Bonus: Premium reduction for policyholders without claims.
• Surcharge: Increase in premium if previous incidents have been recorded.

Example: A doctor with five years without claims could receive a 10% bonus on their liability insurance.

Types of premiums in insurance

There are different ways of classifying the premium based on its payment, calculation and application.

1. According to the payment method

• Single premium: It is paid in a single installment at the start of the contract.
• Periodic premium: It is paid in installments.

2. Depending on the variability of the amount

• Fixed premium: The amount remains constant throughout the term of the contract.
• Variable premium: It may change depending on the claims or insurance company adjustments.

Example: In health insurance, the premium may increase with the age of the insured.

3. According to risk adjustment

• Leveled premium: It remains stable over the years.
• Natural cousin: It increases as the insured ages or the risk increases.

Factors that influence the insurance premium

The premium is not a fixed value and may vary depending on different elements:

1. Professional activity: Professions with higher exposure to risk (such as doctors or engineers) pay higher premiums.
2. Contracted coverage: The broader the coverage, the higher the cost.
3. Claims history: An insured with multiple claims will pay more than one without incidents.
4. Franchise: A high deductible reduces the premium, since the insured assumes part of the risk.
5. Insurance duration: Long-term contracts may offer premium discounts.

Example: A lawyer with a liability insurance policy with international coverage will pay more than one with coverage only in Spain.

Differences between premium and deductible

It is important not to confuse these two concepts:

Both factors influence the final cost of the insurance.

Tips to reduce your insurance premium

If you want to save on your insurance without sacrificing essential coverage, follow these recommendations:

1. Compare several insurers: Not all companies apply the same calculation criteria.
2. Increase the franchise: If you can afford a higher cost in the event of an accident, your premium will be lower.
3. Only purchase the necessary coverage: Avoid paying for coverage you don't use.
4. Take advantage of bonuses: Maintain a clean record to qualify for discounts.
5. Groups insurance in the same company: Some insurers offer discounts for purchasing multiple policies with them.

The premium is the price of insurance that the insured pays to receive coverage against specific risks. Its amount varies depending on the professional activity, the coverage contracted, and the claims history, among other factors.

It's important to compare options, understand what influences their calculation, and seek expert advice to find the best policy at the best price.

At Canarisk , we help you choose the right insurance for you, with the best coverage and at the best price.

Do you have questions about your insurance premium? Contact Canarisk and receive personalized advice without obligation.