Insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.
Age has a great effect on all types of insurance policies. In auto insurance, your age helps to determine your driving experience and potential risk. In general, auto insurance companies consider young, inexperienced drivers to be higher risks than older, more mature drivers. Life insurance policies generally rate younger policyholders with less risk than older policyholders. Younger policyholders generally have a less expensive life insurance policy because they are generally thought to be healthier, and therefore, a healthier risk.
Location can be an important factor for many policies. Insurance companies often research and analyze locations for statistical information. If you reside in an area whose statistics show a high rate of criminal activity and theft, your business and auto insurance costs may increase. These rate increases are due to the rise in insurance risk. The same business or auto insurance policy may be substantially less in a community with little criminal activity and theft.
Your career or overall industry can have an effect on your insurance rates as well. While your position may affect one policy, it may not affect another. For instance, an air traffic controller experiences high stress levels on a daily basis. This continuous stress can have an effect on the individual’s overall health. Therefore, this individual may find subtle increases in life and health insurance policies. However, the same air traffic controller may have an inexpensive auto insurance policy because this aspect does not affect his or her driving abilities.
Insurable assets have a great effect on your policy’s rates. These aspects vary from policy to policy and person to person. In auto insurance, the insurable asset is the policyholder’s vehicle or vehicles. Sports cars, sport utility vehicles and expensive luxury vehicles are generally highly rated and result in higher premiums. However, the policyholder’s combination of other factors, discounts and coverage selections can result in a lower premium. Sports cars and sport utility vehicles usually result in high premiums because they are more apt to be involved in accidents that result in excessive damages and injuries. In life insurance, the insurable asset is the person. The healthier the person, the less expensive the premium will be. If the person is a nonsmoker who exercises regularly and visits their doctor routinely, the person will be more likely to obtain a less expensive policy. In home policies, the age of the home, the type of roofing and security features help to determine the premium rates. The home is the insurable asset, and its risk is dependent upon its specifics.
Although credit is not used as a rating factor, credit can be used to determine the payment plans made available to the policyholder. Insurance carriers use an insurance credit score, which is generated by using factors from your credit report. Each carrier has the opportunity to use their own criteria and credit report selections. Additionally, each carrier uses its own combination of rating factors to determine your score. Therefore, your insurance credit score can be different with each carrier.
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