The insurance premium is a fundamental part of the decision to take out one insurance policy or another. A crucial element for future policyholders. The insurance premium varies according to the company, the type of risk, the contract or the sum insured.
In this article we will delve into what an insurance premium is and all the questions it usually raises.
What is an insurance premium?
The premium is the price of the insurance, i.e. the amount to be paid by the policyholder at the time of taking out the service. Among the most common types are the single premium and the periodic premium, for example, once a year (if it is annual).
With this amount, the insured is covered -by the company- in the event of a claim or similar. The conditions of an insurance premium are reflected in the policy itself.
How is an insurance premium calculated?
In order to calculate an insurance premium, companies must assess the risk. For example, when asking how to calculate a vehicle insurance premium, factors such as the driver’s age or years of experience must be taken into account.
Thus, in order to know how much your insurance premium will cost you, it is necessary to bear in mind the following concepts:
- Pure premium: This is the estimate of the insured risk. It is calculated on the basis of a theoretical probability of loss and its economic cost. The technical interest attributed must also be added.
- Inventory premium: This is the sum of the pure premium plus administrative and management expenses.
- Rate premium: Consists of the inventory premium, as well as other external management expenses.
- Final premium or total premium: Different additional amounts such as the Consortium, IPS, etc. must be added to the insurance premium.
Types of insurance premiums
Depending on the type of payment of insurance premiums, we can distinguish 2 classes:
- Single-premium insurance: This is the least frequent type of insurance, since it is mainly used for fear of loss (to cover insurance for an alteration or construction). The entire insurance premium is paid in a single disbursement. Also in death insurance, it is used for quite elderly people.
- Periodic premium: As the name suggests, this is a regular payment. For example, once a year, or semiannually or quarterly…
Payment of the insurance premium: how is it made?
Normally, it is carried out through a direct debit, as it is the most effective and convenient method of payment for both parties.
The insurance payment can be made directly by the insured to the company or through an agent. It should be noted that all insurance premium payments must have a receipt to prove that the payment has been made and that you are covered for the next few months if something happens to you.
What happens if I stop paying the insurance premium?
In case of non-payment, the company may take legal action against the policyholder. A claim for payment is usually brought in court known as a “monitorio”. This generally occurs before the sixth month after non-payment. The insurance coverage ceases however one month after the due date (as the company grants a “month of grace”).
What is the Insurance Premium Tax or IPS?
First of all, it should be noted that insurance premiums are not subject to VAT, unlike other services. However, they do have the Insurance Premium Tax or IPS, which from this year increased from 6% to 8% after the new General State Budgets for 2021.
According to the Ministry of Finance, this is its definition:
“The tax on Insurance Premiums is a tax of an indirect nature that is levied on insurance and capitalization operations, in accordance with the rules of this article”. Art.12, Section 7 of Law 13/1996, of December 30, 1996, on Fiscal, Administrative and Tax Measures.
How is the return of unearned insurance premiums carried out?
On the other hand, we cannot ignore this very important point, as it is a very widespread issue among the population.
The truth is that everything depends on the insurance company itself. The most common is that you have a period of 1-2 years to use the unearned in another insurance. For example, there are companies that keep the unearned insurance premium in a deposit; a fact that is useful in a car insurance premium.
If your car is a total loss, you have that unearned insurance premium to discount it in the policy of your new vehicle.
Likewise, other insurance companies refund the unearned premium. In any case, this must be reflected in the clauses of the insurance policy itself, so it is advisable to pay attention at the time of signing.
It should be added that, according to the criteria of the Directorate General of Insurance and Pension Funds, if there is no specific clause on the return of the unearned insurance premium, the insurer has every right to keep this amount.
Is an insurance premium deductible for personal income tax purposes?
Not all of them, but some do count as deductible expenses in the IRPF. For example, health insurance premiums do have a deduction for the self-employed, establishing a maximum:
- 500 euros for the self-employed person or for each member of his/her family (spouse or cohabiting children under 25 years of age).
- 500 euros if the self-employed person or any of these family members has a disability.
This is stated by the Tax Agency in Article 30.2 5ª of the Personal Income Tax Law. Similar with sick leave insurance, and also with dependency insurance.
Why take out insurance through an insurance brokerage?
Taking out a policy with an insurance broker only brings benefits to the policyholder. These advantages are not only economic, but also stand out for their human value:
- The best rates in the market: One of the great benefits of contracting a life insurance or home insurance with a brokerage is its price. At PIB Group Iberia we offer our clients the best prices, since we have additional discounts. Because, although insurance companies may offer these products for a lower cost on their website, they have the lowest guarantees, because they know that those who quote on their website are looking for the lowest possible price. In effect, once again: “cheap is expensive”.
- Direct contact with insurance companies: Calling the insurance company can be a very impersonal situation. Having an insurance brokerage implies processing your policy with professionals who know the other professionals. Consequently, actions such as refunding an insurance premium, resolving a claim, negotiating a renewal, are speeded up considerably.
- A human and quality service: We inform you of all the details, in order to provide you with an in-depth knowledge of the service you are contracting.
At PIB Group Iberia we try to ensure that our clients do not fall into a “pit” when taking out insurance, as sometimes happens when they do it on their own. Not knowing what some of the issues mean, there is a tendency to adjust the insurance when, in the event of a claim, this can be fatal.
We know that transparency is fundamental. Therefore, we will gladly resolve all questions with you at PIB Group Iberia so that you get the insurance with the necessary guarantees and the premium that best suits your budget.
