Employee Benefits
What Is an Insurance Premium?
Insurance premiums are essentially the price of your insurance policy. They may apply to health, dental, auto, home, and life insurance — to name a few — and each type of insurance policy has its own rules for determining premium rates. Here’s what to know ahead of open enrollment.
How do insurance premiums work?
Insurance premiums are the regular payments made to keep an insurance policy active for various types of insurance. Insurance premiums are usually a monthly charge that’s determined by your insurance company, and if you enroll through work, also by your employer. These payments are how you keep your policy active and available to cover any claims you may file. The amount of coverage you have is the extent to which an insurance policy will protect against loss or damage.
Once you begin paying your premiums, your policy is active and ready to use when you need it. If you stop paying your premiums, your insurance policy will effectively end, and you won’t be able to use the coverage.
How much are insurance premiums?
A variety of factors play into how much your insurance policy costs. While there are some factors that apply across the board, each type of insurance has slightly different considerations when determining your premium price. Here are some examples of what determines the cost of premiums for various types of insurance:
- Health insurance: Premiums are often influenced by factors like age, location, and the type of plan.
- Car insurance: Premiums are determined by factors, such as your driving record, the type of car you drive, and your location.
- Life insurance: Premiums are typically determined by factors such as age, health, and coverage amount.
Who pays for the policy may also impact the insurance premium rate. For example, if your employer is part of a group insurance plan and you enroll in one of the offered policies, your organization may pay for part or all of the premiums. This is a benefit of enrolling in policies through your employer — rates may be lower than if you were purchasing insurance on your own.
Ready for Open Enrollment?
How do you pay insurance premiums?
Typically, insurance companies offer installment-type premium payments, which you can pay monthly or semi-annually. However, there are some insurance companies that require you to pay the entire price of the policy upfront each year with an annual payment. If you have individual insurance, you typically pay your premium directly with your insurance provider. Some insurance companies allow you to pay your premiums using a credit card, offering convenience and potential rewards points.1 If you’re buying insurance through your employer, you may be able to pay your premium through a payroll deduction.
What’s the difference between insurance premiums and other out-of-pocket payments?
A premium is essentially the cost of membership to have an insurance policy. But there are other out-of-pocket payments you may have to make — in addition to your premium — depending on your coverage. Let’s go over some of these common costs so you know the differences.
- Deductible: How much you pay before insurance starts paying for covered services, usually a pre-set amount
- Coinsurance: How much you pay for a covered service after you meet your deductible, usually a percentage of the total bill
- Copayment: How much you pay for a covered service, usually a flat fee, and doesn’t count toward your deductible
Ready for open enrollment?
With open enrollment season around the corner, it’s the perfect time to compare insurance plans, premiums, and coverage levels. Reach out to your employer or human resources (HR) coordinator to learn more about insurance premium costs and what coverage options are available to you.