Understanding Short Term Insurance Premiums

Short term insurance premiums might just be the origin of the term "fine print". Each policy you sign is a legal document. It gives you rights in the event of an accident, injury, fire, theft, or whatever you have insured for. But with all the insurance jargon can be hard to work out just what those rights are! Here are a few of the more important concepts to help you understand your policy, and how it affects your premiums.

Excess

The excess is the amount you pay before your insurance company starts to pay any claims at all. It is also called the first amount payable. There may be different excess amount for different parts of each policy. The three types of excess are called the standard, additional, and voluntary excess. The standard excess is the basic amount in each section of your policy. The additional excess is the amount you pay if certain conditions are not met, like a driver being over 25. The voluntary excess is the amount you increase the excess to decrease your premium. In general, the higher your excesses are, the lower your premiums are.

Under-insurance

Under-insurance happens when you insure your property for less than its value. In some cases this can leave you liable. For example, if you are under-insured by 50%, when you make a claim you may only receive half of your claim, and you will still have to pay the excess on that claim! Under-insurance is common; your possessions increase in value, and you may forget to increase your coverage.

No-Claim Bonus

Insurance companies would be happy if you never made a claim. In order to encourage you not to make a claim, many insurance companies offer a no-claim bonus on car, household, and other types of insurance. It helps discourage people from making trivial claims. If you don't make a claim over some years, generally three, your insurer will reimburse part of your premium. In fact, some insurers will continue to reimburse your every few years as long as you remain claim free!

Market Value

When you insure your car or other high cost item, you have a choice of how much to insure it for. You can insure it for the retail, market, or trade value. The retail value is the amount a dealer would sell your car for. The trade value is the amount a dealer would pay for your car. The difference between these two can be as much as 10%. If you insure for the retail value, your premiums will be correspondingly higher than insuring for the trade value. But if you insure for the trade value, you may not be able to afford to replace your car in the event of a total write-off. Insuring for the market value is a good alternative. It is halfway in-between the retail and trade values.

Reduce your risk, reduce your premium

If you are trying to reduce your short term insurance premiums, try to think about the problem from an insurance company's point of view. They will try to balance the risk of making a payout against the premium they charge for coverage. If you want to pay lower premiums, do whatever you can to reduce your risk needing to claim!