Why Insurance Premium Varies from Person to Person

When purchasing insurance, one of the most common questions people ask is: “Why am I paying a different premium than someone else for the same coverage?” It may seem unfair at first glance, but the reality is that insurance premiums are not one-size-fits-all. They are carefully calculated based on a range of individual risk factors.

In this article, we’ll explore the key reasons why insurance premiums vary from person to person, how insurers assess risk, and what you can do to manage or reduce your premium.

What Is an Insurance Premium?

An insurance premium is the amount of money you pay to an insurance company in exchange for coverage. It can be paid monthly, quarterly, or annually. The premium amount is influenced by how much risk the insurer takes on by covering you. Simply put, the higher the risk, the higher the premium.

Insurers use a process called underwriting to evaluate this risk and determine the price. This process involves analyzing various personal and situational factors. Let’s delve into the main variables that cause insurance premiums to differ among individuals.

1. Age

Age is one of the most significant factors influencing insurance premiums, especially in health and life insurance. Generally:

• Younger individuals pay lower premiums because they are considered healthier and less likely to make a claim soon.

• Older individuals are more prone to illnesses and health complications, which raises the insurer's risk and therefore increases premiums.

In motor insurance too, young drivers (especially under 25) often pay higher premiums due to a higher statistical likelihood of accidents.

2. Health Condition

In health and life insurance, your current health status and medical history play a crucial role in premium calculation. Individuals with pre-existing conditions such as diabetes, hypertension, or heart disease may have to pay a higher premium.

In some cases, the insurer may even require a medical check-up before deciding the premium or coverage eligibility.

3. Lifestyle Habits

Smokers and alcohol consumers usually pay higher premiums, especially for life and health insurance policies. This is because these habits are linked to serious health risks, reducing life expectancy and increasing the chances of claims.

Additionally, individuals with high-risk hobbies like skydiving, scuba diving, or racing are likely to pay more due to the increased risk of injury or death.

4. Occupation

Your profession directly impacts the risk level for insurers:

• High-risk jobs such as construction workers, miners, or airline pilots come with greater physical danger, leading to higher premiums.

• On the other hand, low-risk desk jobs are less likely to result in work-related injuries or early death, leading to lower premiums.

Motor insurance may also vary based on your job if it requires extensive travel or night driving.

5. Geographic Location

Where you live also affects your insurance premium. For example:

• In health insurance, people living in metro cities may pay more due to higher healthcare costs in urban areas.

• For motor insurance, individuals in accident-prone or theft-prone areas may face higher premiums.

• In home insurance, areas prone to floods, earthquakes, or crimes may attract higher premiums due to increased claim risk.

6. Type and Amount of Coverage

The sum insured or coverage amount directly influences your premium. A higher coverage naturally leads to a higher premium.

Also, add-ons like critical illness cover, maternity benefits, room rent waiver, or zero depreciation in motor insurance can significantly raise the premium amount.

7. Claims History

Insurers often look at your claims history before deciding your premium, especially during renewals.

• In motor insurance, if you’ve made multiple claims in the past, your premium may increase.

• Conversely, a No Claim Bonus (NCB) can reduce your renewal premium if you haven’t made any claims during the policy period.

8. Body Mass Index (BMI)

In health and life insurance, BMI is a key indicator of overall health. A higher BMI may be associated with obesity and related health problems like diabetes and hypertension, which increases risk for the insurer and leads to a higher premium.

9. Gender

Statistically, women tend to live longer than men and are often considered lower risk for certain types of insurance. In many cases, women may enjoy slightly lower premiums for life insurance. However, for health insurance, women-specific plans (like maternity coverage) can influence premium amounts differently.

10. Driving Record (for Motor Insurance)

If you’re buying motor insurance, your driving record can greatly impact your premium. A person with a history of traffic violations, speeding tickets, or past accidents is deemed a high-risk driver and will pay more than someone with a clean driving history.

How to Reduce Your Insurance Premium

While many premium determinants are outside your control (like age or location), some are manageable:

• Maintain a healthy lifestyle – quit smoking, exercise regularly.

• Choose an appropriate coverage – don’t over-insure, but don’t under-insure either.

• Avoid unnecessary add-ons.

• Compare policies online before purchasing.

• Build a claim-free record to earn bonuses and discounts.

• Opt for higher deductibles if you can afford out-of-pocket expenses during claims.

Conclusion

Insurance is a tool to manage risk, and premiums reflect the level of risk an individual brings to the insurer. The reason your premium differs from your friend’s or colleague’s is that your personal profile, lifestyle, and coverage needs are different.

Understanding these factors helps you make informed decisions when buying insurance. Always disclose accurate information during application to avoid claim rejection later, and review your policy annually to ensure it still suits your needs and budget.

A well-tailored insurance policy not only offers peace of mind but also ensures financial protection during life’s most unexpected moments.