THE CONCEPT OF PREMIUM

Insurance is a Contract; there are two parties in the contract of Insurance, Insurer and
Insured. The insured gives premium as a consideration in return of which insurer undertakes
to pay a certain amount at a specified contingency. There is no precise definition of the
Insurance Contract, Several Jurists tried to define it

An insurance premium is the amount you pay to your insurer regularly to keep a
policy in force. You may be able to pay premiums monthly, quarterly, every six months or
annually, depending on your insurance company and your specific policy. If you do not pay
your insurance premium, your policy will be cancelled and you will not have financial
protection for claims.

Premium is an amount paid periodically to the insurer by the insured for covering his
risk. In an insurance contract, the risk is transferred from the insured to the insurer. For taking
this risk, the insurer charges an amount called the premium. The premium is a function of a
number of variables like age, type of employment, medical conditions, etc. The actuaries are
entrusted with the responsibility of ascertaining the correct premium of an insured. The
premium paying frequency can be different. It can be paid in monthly, quarterly, semi
annually, annually or in a single premium.

An insurance premium is the price a person or business (the insured) pays for an
insurance policy. Insurance premiums are paid for all types of insurance: healthcare, rental,
accident, auto, home, life, and more. The amount that is paid to the insurance firm by the
insured in thought to insurance contract is thought as premium. It should be paid on monthly,
quarterly, half-yearly, yearly or as specified. It's the value for associate degree contract. It is
the sum Payable (usually annually) by the insured to the insurer under a contract of
insurance.

Meaning and Definition of the Premium -

According to the Macmillan dictionary, “regular payment made to an insurance company

so that you are protected by the insurance."

National Insurance Company Limited defines premium as, "premium is fixed amount of
sum paid over the period by ensured to the insurer in order to secure an insurance policy and
to complete the contract of insurance.

Insurance Premium is paid as a cost to cover a possibly unseen devastating loss. It

is the actual amount of money charged by insurance companies for active coverage. An
insurer is the company selling insurance and insured is the policy owner.

FACTORS THAT CAN AFFECT LIFE INSURANCE PREMIUMS

Insurance is a form of risk management primarily used to hedge against the risk of
a contingent loss. The insurance rate is a factor used to determine the amount (called the
premium) to be charged for a certain amount of insurance coverage.

Insurance premiums vary widely among insurance providers, so it is advisable to

get several quotes from various providers before committing. Both the Voluntary Excess
and premium are inter-related.

They are part of the amounts to be paid for the coverage. When the Excess is high,
the premium is automatically low and vice versa. These two parameters affect the cost of
the insurance you purchase.

Whether you are an individual or a family, securing your finances must fall at the very
top of your priority list. This is particularly true if you have any dependants relying on you as
a financial provider. It is essential that in the event of your unfortunate demise, the financial
concerns of your dependants, be they familial or professional, are looked after.

That is why it is recommended that every individual and family avail a life insurance
policy that can help safeguard their futures and provide some much-needed peace of mind.
However, one must consider that while a life insurance policy is a universal recommendation
for all, the particulars of each policy differs from person to person.
There are various features that differentiate one insurance policy from another, including the
benefits provided by that specific insurer. But in particular, the premium amounts that a
person pays towards his or her life insurance policy is dependant on a number of crucial
factors.

1. Age

Your date of birth is the top factor affecting your life insurance premium. There are a number
of reasons why age factors into life insurance and younger policyholders pay lower
premiums. As you age, the likelihood an insurer will have to pay out on your policy
increases; therefore premiums increase

2. Gender

Women tend to live longer than men. In the United States, the average life expectancy for
women is 81.1 and 76.1 for men. The disparity means that women generally pay less for life
insurance than men do.

3. Health History

Insurers may require a medical exam and access to your health records before issuing a
policy. A history of medical conditions, especially serious illnesses such as heart disease or
cancer, will increase your premiums. Insurers will also look at your weight, cholesterol
levels, blood pressure and other metrics that could indicate future medical conditions.

4. Family Health History

Even if you have no current medical conditions, a family history of illness, especially
hereditary diseases, could factor into your life insurance premium and increase the cost of
your coverage.

5. Smoking

The health risks associated with smoking, including potentially fatal diseases like cancer,
mean increased premiums. If you’ve quit smoking since purchasing life insurance (congrats,
by the way!), call your provider to see if your nonsmoker status will lower your rate.

6. Hobbies

Do you spend weekends skydiving? Have a passion for racing cars? High-risk hobbies could
lead to higher premiums, but exactly which activities fall into this category varies by insurer.
It may pay to shop around for quotes if you enjoy high-risk hobbies.
7. Occupation

Loggers, pilots and roofers are among the many professions considered riskier than others.
When you apply for life insurance, insurers will ask about your work. Your premiums could
be higher if your occupation exposes you to toxic chemicals or requires you to perform
dangerous duties.

8. The Policy

The specifics of the policy you choose is another factor that affects your life insurance
premium. Policies issued for larger benefit amounts over longer terms generally cost more
than policies with smaller benefit amounts over shorter periods. Also, there are differences
between whole and term life insurance policies. Whole, or permanent, life insurance policies
tend to be more expensive than term life insurance policies.
MARINE INSURANCE

Premium can be ascertained either by numerical rating system or by judgment

method. The numerical rating system evaluates each and every item and marks are assigned
to them according to their merits and degrees of influencing risk.
Since the marine perils are varied, the only numerical rating system cannot be successfully
utilized.

Risk analysis is one of the marine insurer’s core activities and is characterized by the
apparent contradiction between generally applicable, objective factors, on the one hand, and
individual experience and subjective interpretation, on the other. It is this non-standardized
pattern of work which essentially distinguishes this sector of the insurance industry from
those insurance sectors backed by collective agreements. Marine insurance grants protection
against a large number of perils which are viewed in relation to the inherent character of a
large variety of subject-matter of insurance, the effects of season, adverse physical forces and
trade customs, and the policy conditions.

Management

Once management may be efficient in the upkeep of the vessel and the appointment of
officers and crew. Other management, through negligence, indifference, and undue economy,
may show a bad record. To treat these managements alike would be an injustice to the better-
managed concerns. It would penalize efficiency and carefulness and put a premium on
inefficiency and carelessness.

Natural Forces and Topography

The underwriters consider the character of the route, the construction, type and the
nationality of the vessel and contract. Some natural hazards are permanent while others
are of seasonal dangers. References are made to storms, submerged shoals, shifting sandbars,
shallow water, narrow channels, ice, currents, tides, and seaquakes while calculating the
premiums to a particular route. Dangers from an underwriting point of view are associated
with the ports of departure, call or destination. Some ports are known for insufficient depth,
the absence of good anchorage ground, lack of protection against tides or Tidal waves.

Construction, Type, and Nationality of the Vessel

The quality and fitness of the vessel to serve as a carrier on the particular route are
naturally of the utmost importance. The underwriter wants to know the vessel with respect to
its builder and owner, structural plan, material used in construction, type of propulsion,
structural strength to resist stresses mid strains, adaptability to carry various kinds of cargo
and its age and physical condition, In foreign countries, certain societies are formulated to
promulgate rules for the construction of vessels, supervising such construction and assigning
a class to each vessel.

The Lloyd’s Register contains information to numerous vessels of other countries,

name and nationality of the vessel, materials of construction, details of the decks, and the
engine and boiler equipment of the vessel. Periodical changes are noted down there.

The nationality of the vessel is important to the insurer because it discloses the
dependence of the nations upon the ocean trade. The nationality reveals the skilfulness of the
masters and crew, the rates may vary greatly as to the standard or commercial honour in
trade, high standard, and commercial ethics. Premium rates are based on the age of the vessel,
propelling method body-structure, risks covered, the distance for transit and nature of the
vessel, tonnage capacities, port- classification and season of sailing.
 Policy Conditions

Innumerable clauses are used to limit or increase the underwriter’s liability. Some
policies may cover against total loss. Some may cover partial losses. Others may relate only
to general average or particular average.

The character of the Cargo

The difference in hazard between various kinds of commodities, different forms of the
same commodity, different shipments, and different types of packing and durability of the
commodity may influence the premium rates.

Quality and Suitability of the Vessel used as Carrier

The underwriters take into account the fitness of the vessel to carry the particular
cargo. The premiums are higher in the case of ship of slower speed due to longer exposure of
the cargo. In case of highly perishable goods, moving in large quantities, special types of
vessels have been designed to carry such commodities.

Duration of Voyage and Policy Conditions

Insurers take into account the length of time. Sometimes, loading of the goods aboard
the vessels and protection of the goods while on the dock is considered in the calculation of
premium.

FIRE INSURANCE POLICY

Fire Insurance is the perfect protection plan for your offices, home and any other
workplace. It protects your building, assets, furniture and fixtures against series of perils.
Claims under this policy can be settled either on the market value basis or on a reinstatement
value basis.

One should invest in fire insurance as it offers a safety net against a series of perils.
Although you have security measures installed in your property, no property is resilient to
fire, flood, explosion, theft, or burglary. The repercussion of contingencies can lead to
financial fragility if you’re not ready to face the mishaps. It is smart to buy fire insurance and
protect your building and its content from unforeseen damages that may occur due to fire and
natural disaster. The cost of a fire insurance policy is ascertained on the basis of various
parameters. Following are the main factors that affect the premium rate under fire insurance:

1. Occupancy:

Fire insurance premium rate depends upon the nature of occupancy i.e. for what
purpose the building is been used. An office, restaurant or a shop has lower risk exposures
hence, the low premium amount is been charged on them. However, the premium rate on
manufacturing, warehouses and industrial premises are comparatively higher as the
occupancy of the building assumes high-risk exposures. If your building has basement risk
exposure, it increases the premium amount.

2. Risk Location:

Location of your building plays the pivotal role in premium calculation. Multiple risk
location assumes a higher premium amount as compare to single risk location. Risk locations
such as Assam, Arunachal Pradesh, Manipur etc. which are more pron to earthquake assume
higher premium amount. States or regions which are less prone to earthquake assume lower
premium amount. Even when your property is an area where the crime rate is high, the
premium cost would be higher. Even the nature of the adjoining building also affects the
premium amount.

3. Value of your company and total assets:

The total value of your assets and building is the basic factor of the premium amount.
The market value of the building and purchase value of all the contents are taken into
consideration while calculating the premium amount.
4. Add-on Covers:

Various add-on covers can be availed by paying an additional premium amount. Special
perils coverage can be covered under fire insurance. As per your requirement, you can
include these additional covers under the fire insurance policy. Some of them are:

 Loss of Rent

 Additional Expenses of Rent for an Alternative Accommodation

 Start Up/Shut Down Expenses Clause

 Removal of Debris

 Temporary Repair Cost

 Deterioration of Stocks in Cold Storage

 Forest Fire

 Impact Damage

 Spontaneous Combustion

 Omission to Insure

 Spoilage Material Damage Cover

 Leakage And Contamination Cover

5. The construction of building and occupancy:

When the building is under construction, the sum insured of the project is taken into
consideration and for what purpose the building will be used. Hazardous risk exposures to the
property also affect the premium amount. Apart from mentioned factors, deductibles, past
claim history and instalment of security measures also affect the premium rate of fire
insurance.
MOTOR INSURANCE PREMIUM

Premium is an essential consideration while availing motor insurance. It differs across

insurers and depends on multiple factors. As a vehicle owner,

An insurance premium is an amount paid for purchasing an insurance plan. An

insurance plan is a contract between an insurer and an insured. Any valid contract has a
consideration, and the consideration you pay for an insurance policy is called its insurance
premium. Premium can be a regular monthly, quarterly, half-yearly, or yearly payment. It
could even be a one-time lump sum payment, depending upon the policy terms.

Insured declared value (IDV)

In simple words, IDV refers to the market value of your vehicle. Thus, the more expensive it
is, greater is the premium amount. When you buy a new vehicle, its market value is high. In
such a scenario, the premiums are higher. Also, note that vehicles of premium brands
command a higher premium. Additionally, if you have any accessories such as an imported
music system installed in your vehicle, it adds to the vehicle’s IDV, thus increasing the
premium.

Engine size

The size of engine, measured in cubic capacity, fitted in your vehicle plays an important role
in determining insurance premiums. Vehicles with a bigger engine size command higher
premium than those with lower ones. This is because big engine vehicles are expensive and
are more prone to accidents. All of these increase premiums drastically.

Purpose of vehicle

It is another essential factor which influences more insurance premiums. If you intend to use
the vehicle for commercial purposes, you need to shell out a higher premium. This is because
the vehicle, in this case, is a source of income. On the other hand, if you intend to use the
vehicle for personal purposes, insurance companies charge lower premiums.

Geographical location
 It may come as a surprise, but motor insurance premiums are heavily influenced by
where you live. Note that for premium calculation India is divided into two zones – Zone A
and Zone B. While Zone A comprises prominent metros including Kolkata, Chennai, New
Delhi, Mumbai, Bengaluru, Hyderabad, Pune and Ahmedabad, Zone B covers the rest of
India.

Generally, motor insurance premiums are higher if you happen to be resident of Zone
A which experiences dense traffic, thus increasing chances of accidents. Also, if you happen
to be an urban resident, you might need to shell out a higher premium as your vehicle is
exposed to more risks.

Add-on covers

You can enhance your coverage through add-ons. There are several add-ons that you
can opt for along with your motor insurance plan such as zero depreciation cover, engine
cover, lock and key replacement cover, etc. The premium amount is directly proportional to
the number of add-ons opted for. It means higher the number of add-ons, greater is the
premium.