Insurance Premium

An insurance premium is the price paid by the policyholder to the insurer to maintain an active insurance policy or cover. It is typically paid annually or monthly.

Contract Function: Paying the premium ensures your contract is in force, meaning the insurer is legally obligated to respond to claims under the policy’s terms.

Show Transcript

Have you ever wondered why your insurance premium keeps changing? Well, premiums aren't random. They're built on risk factors and insurer confidence. Here are things that can often push your insurance premiums up. Growth in revenue or staff. More exposure equals higher risk. A prior claims history. More claims equals a higher risk signal. Changes in business activities. Think new services, industries, new locations, and lapses in compliance, safety breaches, or just poor internal control. And here's what can bring your premium down. This is what you want to know. Number one is a strong claims-free history. Also, a clear documented risk management process, updated valuations of stock and things in your business to make sure that you're not overinsuring and proactive loss prevention steps. Think security training policies. Some insurers reward businesses that actively manage risk, not just those that get lucky. You're not just paying for cover. You're paying for how the insurers view your business risk. Review your risk profile regularly. The better your controls, the better your negotiating power.

Components of Your Premium

Your total premium is based on a structured risk assessment plus mandatory government charges.

1. Risk Factors (The Insurer’s Charge)

The cost is determined by factors that assess the likelihood and cost of a claim:

• Risk Exposure: The nature of your industry, specific business activities, and operational location.
• Chosen Limits: The Sum Insured (for property) or Limit of Liability (for PI/PL) you select.
• Claims History: Your past loss record, which indicates future claims probability.
• Business Metrics: Operational details like revenue, turnover, and number of staff.

2. Statutory Charges (Mandatory Levies)

These levies are added to the insurer’s charge and must be paid by the policyholder:

• Goods and Services Tax (GST)
• Stamp Duty (Tax imposed by state/territory governments, rate varies by location).
• Emergency Services Levies (ESL) (Mandatory charge in states like NSW, VIC, and TAS to fund fire and emergency services).

Premium vs. Excess: What’s the Difference?

Policyholders often use them interchangeably, leading to confusion about their financial obligations and how they impact the final claim settlement. Understanding the difference is crucial because one is paid to secure coverage, and the other is paid to use it.

Related Terms

• Broker Fee – Often confused with premium, a broker fee is a separate charge for the broker’s advice and service.
• Adverse Selection – When high-risk individuals dominate the insurance pool, premiums rise for everyone.
• No Claim Bonus – A discount applied to your premium when you go claim-free, rewarding lower-risk policyholders.