How is it calculated?
- To calculate it, insurers estimate the probability and potential cost of a claim, which is known as the pure or risk premium. Added to this amount are administrative costs, the company’s profit margin and the applicable taxes, making up the total premium payable by the policyholder.
What types of premiums are there?
- There are different types of premiums depending on how they are structured and how they are paid:
- Fixed premium: This remains at a constant amount throughout the term of the contract, irrespective of changes in the risk or the policyholder’s circumstances.
- Variable premium: This may be adjusted over time depending on factors such as changes in risk, amendments to the policy or changes in the insured’s circumstances.
- Pure or risk premium: This represents only the actual cost of the risk assumed by the insurer, excluding expenses and taxes.
Do you know how it is paid?
- Lump-sum payment: The insured pays the full premium in a single instalment to cover the entire policy period.
- Periodic payment: Payment is made at regular intervals, such as monthly, quarterly or annually, making it easier for the insured person to manage their finances.
- Pro-rata premium: For some insurance policies, particularly short-term ones such as travel insurance, the payment is adjusted to the period selected and may be proportional to the duration of cover.
Sources:
Directorate-General for Insurance and Pension Funds (DGSFP) Official State Gazette (BOE)
