What is an insurance premium?
Published 2 October 2015
If you’re a newcomer to the word of insurance, here are some of the basics.
Earlier this week, we told you about the increase in insurance premium tax. If you’ve never had to take out any sort of insurance before – maybe you’re about to head off to university or buy your first car – you might not be sure what an insurance premium actually is. To get you up to speed, we’ve put together this guide.
An insurance premium is the amount that you’ll pay each month, year or – in some instances – just once for an insurance policy. What you’ll pay will depend on two things – the risk involved, and the value of what you’re insuring. Unsure what this means? Here’s an example: if you’ve recently just passed your test, you’ll be seen as more likely to have an accident than an experience driver, so your premiums will reflect this. Similarly, if you own an expensive car then this will probably need costly repairs if you have an accident, so your monthly premiums will be higher too.
Things to consider
Although insurance premiums are used on all insurance policies, there’s a couple of things that you need to consider when it comes to car insurance. Most insurance policies specify an “excess” – that’s the amount of any claim you will have to pay yourself. Car insurance is no different and the excess level can have a surprisingly big impact on the insurance premium. When searching for insurance, providers will give you a pre-set excess price but you can choose to pay a higher “voluntary” excess.
If you opt for a bigger voluntary excess it can have a big impact on the cost of your car insurance as the insurer won’t have to pay out as much in the event that you do make a claim. But think carefully about this, as if you do have an accident you will be the one having to pay the excess, so you shouldn’t be tempted to put this up too high – particularly if your car isn’t worth that much!
Looking for insurance
If you’re currently looking for insurance deals make sure you do your research beforehand. Using price comparison sites like uSwitch.com will help you to do this. But bear in mind that not every insurance company are featured on these sites, so it could be worth approaching other companies like Direct Line or Aviva for direct quotes.
When searching on these sites, make sure that you compare like-for-like cover, as you could find a cheaper policy only to find that it gives you less cover overall. If you’ve already got insurance and find a cheaper quote from elsewhere, go back to your existing insurer and see whether they can match the price for your renewal quote, if you want to stay with them, that is.
Here at thinkmoney, we can help you compare deals from some of the UK’s leading insurers.