Insurance is seen by many as a necessary evil. They balk at paying the monthly premiums but at the same time understand the risks of not being covered. So why is insurance so expensive in the first place?
Whether you’re looking into home, car, or health insurance, there are various factors that insurance companies take into account that affect your premiums and deductibles.
Risk Assessment
When calculating your rates and premiums, insurance companies perform a risk assessment with the help of actuaries. To do this, they use software to determine the likelihood (or risk) of you filing a claim. The software runs a predetermined algorithm that measures your personal indicators against an existing dataset to gauge the risk.
The insurance underwriters can then weigh your risk and decide on an insurance premium that will balance your need to make a claim against your policy and the insurance provider’s profitability.
Thus, certain factors will make your insurance cost more. For example, big insurance companies usually charge people who smoke a higher health insurance premium because it is a high-risk behavior that increases the likelihood of hospitalization at some point.
Insurance companies need to protect both themselves and their policy-holders, which is why these risk assessments are necessary. Depending on key indicators like age, behaviors, credit scores, and more, this is one of the main reasons why insurance (of any kind) is so expensive.
Type Of Insurance
The reasons why insurance is expensive are also dependent on the type of insurance. For example, there are different factors to take into account when setting premiums for health insurance versus auto insurance.
Auto Insurance
Auto insurance is well-known for being expensive. The reason why is because the cost of claims is high. Thus, insurance companies set expensive premiums to ensure that their policies are still profitable for the company.
Big insurance companies also see a lot of fraudulent claims against auto insurance policies, as well as whiplash claims. So, to account for this, they often have quite high auto insurance policies.
As mentioned earlier, there are certain key indicators that also affect how much you pay for auto insurance. Some common indicators that big insurance providers may take into account include credit history, age, address, driving record, marital status, gender, and prior coverage.
Home Insurance
When it comes to home insurance, factors like the area you live in, your occupation, and credit history can have an impact on your insurance. For example, if you live in a high-crime area, big insurance companies will set a higher price as the risk is greater.
You should also check whether your policy has a low deductible. Lower deductibles mean that you will pay less upfront when you have to make a claim. But if you choose a plan with a higher deductible, you’ll pay less for your monthly premiums.
There are, of course, pros and cons to this, but if you have a solid emergency fund, this might be worthwhile to help you save money in the long run.
Health Insurance
Health insurance is expensive in the US because the healthcare system is very complex. As the costs for medical services vary across the country, providers can charge people more depending on the geographical location. In addition, the costs of prescription drugs and administration are high resulting in high claim costs.
Flood Insurance
In areas more prone to flooding, big insurance companies have started to revise their basic plans. Where standard plans once covered flood damage, people are now having to purchase separate coverage for natural disasters. This can hike up your monthly premium costs quite a lot.
While flood insurance costs are location-dependent, flooding is one of the most common natural disasters in the US. So, it is worth having even in a low-risk area.
What Can You Do About It?
If you feel like your insurance costs are through the roof, it might be a good idea to change insurance providers.
At Aaron Miller Insurance, we value integrity and reliability. We can customize an insurance plan to suit your budget to ensure that you get the coverage you need without breaking the bank. With our local, home, flood, and auto insurance plans, you can rest easy knowing that you’re covered when things go wrong.
