How much is your premium?

Since the chances of most perils occurring can be measured statistically on a basis of past experience, it is possible to calculate a theoretical annual premium which, when added to the contributions from all the other participants, would be just sufficient to meet all the claims likely to arise in any one year. Suppose, for example, that i,000 people joined together to provide insurance for themselves and that, in one particular year, twenty-five of them claimed back amounts totalling £4500 to cover various accidents.



To meet these claims the i,000 policyholders will have to have contributed in premiums at least as much as the £4500 cost ,0f the claims; in other words, each person should have paid into the pool an average of £4500/£4 ,000 = 1.25 pence.

In practice, the chances of any disaster occurring to one particular person depend on a number of factors. For example, when you insure your car, statistics show that the chances of your having an accident depend on your age; your occupation; the type, use and age of your car; your driving experience; and so forth. This means that the probability of an accident occurring varies from person to person, and it would be unfair to charge everyone the same premium regardless of the risk to which he is exposed.

The premium has to be related to this risk. In our example, if 500 of the i,000 policyholders were twice as likely to make a claim because they lived in a city, their premiums should be twice that charged to the remaining policyholders. If we charge the city dwellers £6, and the others £4, the total premiums still come to ££4500, as before, but this time the method of fixing the premiums is fairer to each class of policyholder.

Theoretically, your insurer should assess the risks of each individual application before deciding how much to charge you in any one year, but in practice this would involve an enormous amount of work. Instead, he divides policyholders into a few broad categories, charging each an average premium applicable to the whole group. With this system, some policyholders are paying more and others less than they would with an individually calculated premium.

Insurance is, like any other industry, a commercial enterprise. Your premium will therefore also include a charge to cover the administration and overall expenses incurred by your insurers and, unless the company is a mutual one, the shareholders' profits. These expenses generally equal about one third of the premiums in any one year. With life and long-term health policies, insurers also take into account the rates of interest they expect to earn; they also often allow margins for bonuses on with-profit policies (see http://healthinsurance.about.com/od/healthinsurancebasics/a/cost_of_health_insurance.htm).


Your premium

Payroll Giving
It’s all very easy to organise.
Just ask the Personnel or the Payroll Department at your company and, if they already have a scheme, they will give you the relevant forms.  HM Revenue & Customs’ website has a list of Payroll Giving agencies and explains payroll giving in more detail.

Salon Gold Insurance

Cheaper Insurance for Salons, Freelance Hair and Beauty, and Mobile Businesses - click here

read on: Types of insurance

Since the chances of most perils occurring can be measured statistically on a basis of past experience, it is possible to calculate a theoretical annual premium which, when added to the contributions from all the other participants, would be just sufficient to meet all the claims likely to arise in any one year. Suppose, for example, that i,000 people joined together to provide insurance for themselves and that, in one particular year, twenty-five of them claimed back amounts totalling £4500 to cover various accidents.


To meet these claims the i,000 policyholders will have to have... see: Types of insurance