CrossRoads Financial Group

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Auto Insurance
In my vlog post – What is Insurance – I covered the insurance term “Premium.” The premium is simply the dollar amount you pay the insurance company in exchange for your coverage. Whether you’re buying auto insurance, a warranty on your phone, or insuring Beyonce’s legs, the premium is calculated by the carrier using some assumptions. The folks doing these calculations are called actuaries, and their job is to analyze (among other things) the likelihood of having to pay a claim on a policy, and how much interest they can earn on your premiums until they have to pay. From these assumptions, they calculate a premium. All else being equal, the lower the likelihood of a claim, or the longer it will be until a claim is likely to be paid, the lower the premium. In addition, the higher the interest rate they can expect to earn, the lower the premium.

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