In the second video of our NRMA Insurance series, Insurance Explained, we look at how insurance is priced and the factors that can influence the price of your premium.
Today I’ve been set the challenge of explaining how your insurance premium is worked out. This is something actuaries (or boffins as they’re technically known) spend years studying. But none of us have that kind of time, so I’m going to give you the short YouTube version.
You pay a premium for every type of insurance. This is so there’s a big pool of money that can be paid out when people make a valid claim – we all pay a premium, so we’re covered when you need a lot.
Now I’m going to focus on how your home insurance (http://www.nrma.com.au/home-insurance) premium is worked out, which will give you a good understanding of premiums in general. Not a Bachelor of Actuarial Science kind of understanding, but a good one nonetheless.
Premiums go up or down depending on the likelihood of a claim being made, and how much that claim is expected to cost.
And there are a number of factors used to decide this, first is location. For example, move to a house at the foot of a volcano and your premium is going to be higher than if you live in somewhere as safe as Fort Knox!
But this is just the first factor. The value of your home and contents also makes a difference to the cost of your premium, as any claim is likely to cost more.
Then there are other things like the age of the house, the quality of the structure, what material it’s made of and if you have an alarm.
Then there’s also reinsurance to consider. Now just as you have insurance, insurers themselves take out their own cover, called reinsurance, this is so they can be confident of honouring their customers’ valid claims, particularly if a disaster affects many thousands of people.
Given recent natural disasters and weather events in our region, like storms and floods in New South Wales and Queensland and the Perth bushfires, the cost of reinsurance has increased.
Once all of this has been considered and the insurer has all your relevant information they can then work out your premium, including any government charges and levies.
Hopefully that gave you a good understanding of how your premium is calculated. If you do have any other questions, you can always call or visit your insurance company.
Other videos in the NRMA Insurance Explained Series:
How to Make an Insurance Claim: http://youtu.be/5M2vGNeT-oY
How to Understand Insurance Terminology: http://youtu.be/X1vq_y94Wa8
How to Choose the Right Level of Insurance: http://youtu.be/yUj4naTafOc
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