Staying Safe: Understanding Insurance Premiums, Policy Limits, and Deductibles

Insurance is a complicated thing to understand, especially if it’s your first time getting one. So, whether it’s for your home, health, business, or car, hiring an insurance broker can significantly help you understand your insurance policy, limits, and deductibles. Although these things have specific terms depending on the risks, needs, and preferences of the policy owner, you should still understand the basics of these categories.

Unfortunately, some insurance policyholders choose to avail themselves of insurance policies even if they’re not familiar with the terms, which may cause problems in the future.

In this article, we’ll discuss the insurance premiums, policy limits, and deductibles to help you make an informed decision when shopping for insurance.

1. What Is an Insurance Premium?

The insurance premium is the amount you pay, depending on your chosen terms, such as annually, quarterly, or monthly. It’s like a membership fee that helps you keep your insurance policy going. No matter what type of insurance you get, you can always get the insurance premium you can afford. Of course, this still depends on the insurance type and coverage.

Unfortunately, if you fail to pay the premiums, the insurance company will cancel the policy. So, you should discuss it with your insurance broker before agreeing to the terms and signing the policy.

What Affects Your Premium?

When looking for the right insurance policy, you should first analyse your risks. You can consult with your insurance broker about the amount of coverage you prefer. Aside from the coverage, here are the other factors that may affect your insurance premiums:

• Health, age, and risks
• Claims history
• Business type or location ( for businesses and property insurance)
• Chosen amount for deductibles
• Insurance company terms
• Safety measures implemented

2. What Are Policy Limits?

As you know, there’s no such thing as insurance that fits all. And even if you have insurance, there’s still a limit as to how much you can claim in case of an unexpected situation. This is called the policy limit, which is the maximum amount you can claim per insurance policy. If the maximum amount that you can claim for the policy has been reached, you’ll need to pay for the remaining amount out of pocket.

So, when looking for an insurance policy, one of the things you should understand is the policy limit. Although it may depend on the premiums and deductibles still essential to be aware of it.

Types of Limits:

There are two main types of limits, per-incident limit and aggregate limit. The per-incident limit is the amount you can claim per accident. On the other hand, the aggregate limit is the total amount you can claim for the entire policy term.

When arranging the limits, you can discuss your preferences with your insurance broker, so that they can provide the best recommendations. Of course, don’t forget to consider your financial status, risks, and assets.

3. What Is a Deductible?

The deductible is the amount you agree to pay out of pocket once the insurance claims kick in. As mentioned, the deductible is one of the factors that can affect the amount of premiums. So, if you agree to pay high deductibles, you only need to pay low premiums. On the other hand, if you don’t want to pay high deductibles, it’s guaranteed that you will have to pay a high amount of premiums.

Usually, deductibles may vary depending on the type of insurance, coverage, and other factors. Although it’s not common, there are instances when the policies don’t even have deductibles, so you should check on this before the agreement.

How It Works:

During unexpected situations, you can file claims depending on the amount you need. For instance, if you file for £3,000, and your deductible is £1,000, you need to pay for the £1,000 while the insurer will cover the £2,000.

Meanwhile, when choosing whether you should avail of high vs low deductibles:

• High deductibles: Low premiums, but you need to pay off high out-of-pocket money once the insurance kicks in.
• Low deductibles: High premiums, but you need but you need to pay off low out-of-pocket money once the insurance kicks in.

Balancing the Three Categories

Although it’s a great decision to hire an insurance broker, understanding the insurance policy, policy limits, and deductibles can significantly help you make informed decisions. In addition, finding the right balance among these three categories in insurance terms can help you manage your budget and also allow you to have comprehensive insurance coverage.

Final Thoughts

Insurance isn’t just a want, but a need. So, if you still haven’t availed yourself of your business, family, health, or property, this is the right time to do so. However, you should first understand the basics before diving into this investment. At the same time, don’t hesitate to hire an insurance broker who can help you further improve your knowledge and understanding of insurance.