Reasons for Rate Increases on Inurance Policies

The basic principle behind insurance is that an individual gives money to a company that promises to cover any losses that you incur. A homeowner purchases insurance for a house in case it incurs any major damage, burglary, or anything else that an individual would not be able to replace. A driver insures a car because damages can be quite high in an accident, even a minor one. Anything that is valuable to you, and would be costly to replace can be insured. Having insurance is a great thing, but why does the amount that a policyholder pays go up from time to time?

The amount that a person pays for insurance is proportional to the risk that an individual brings to the insurance company. The underlying principle when it comes to premiums is that a company collects money from multiple people, and pool that money. When an individual claim is made, the company will pay out from the money that they have collected from each policy.

If any one policy has too many claims made against it, that increases the money that the insurance company has to pay for just one policy. Since the insurance company has to pay out more money to one policy, the insurance company is going to increase the rate of insurance for the individual that is a bigger risk. Insurance is a business, and the insurance companies don’t want to lose money on bad business decisions.

Policy rates can increase if taxes go up, or the government decides that they will not help cover uninsured people. In New York state, a law was recently passed that added a surcharge to every motorist who had insurance. The state decided they weren’t going to subsidize drivers who required insurance to drive, but were in the risk pool, meaning no company would take them. That money got passed onto the people who had insurance, and weren’t bad risks.

Insurance rates can go up for any reason, and where you live can determine what your rates are for insurance. For example, if a town is built next to a river that floods, homeowners insurance will be higher, and flood insurance could be made mandatory. The risk of living in a certain area could rise, based on a recent natural disaster, or a wildfire, an area could be a higher risk. This risk will result in a price that could go up.

Basically insurance is all about risk. If risk goes up, then the price of insurance goes up. If a policyholder is a risk, the rates on that policy go up. If an area becomes risky for an insurance company, the rates go up regardless of who is on a particular policy. Always be on guard for rates raising, and take into account anything that can raise your risk. That way you can predict whether a rate increase may come about.