Definition of "Premium"

Bobby  Atkins real estate agent

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Bobby Atkinselite badge icon

Venture Realty

Premiums in insurance and real estate define as a bonus or surplus money. A dividend means a periodic fee you have to pay for your insurance protection. While in real estate, a premium implies an extra amount of money for purchasing a home above the anticipated winning price at an auction. 

Suppose you wish to buy a property, and the concept of a premium pops up at a particular moment, meaning you might have to pay more than expected. In that case, we recommend you contact professional local real estate agents who can expertly address any of your inquiries!

What does an insurance premium imply?

Does the logical question emerge who decides how high your insurance premium goes? A premium is the amount of money one pays an insurance company in exchange for various insurance policies. The more assets, real estate, and valuables you own, which you wish insurance for, the more premium you’ll have to pay. 

For example, if you want coverage for your luxury car in case of an accident or theft, the more insurance premium you have to pay. Also, younger car drivers might have to pay a higher premium than older, more experienced drivers because they tend to drive more carelessly. 

How do they calculate an insurance premium in general?

As we established earlier, a premium implies a rate that an insurance company charges based on the client’s expectations of risk and loss. For this purpose, the insurance company assumes the insured party’s risk accounting for their health, length of life, risk identification in liability exposure, and property damage or destruction. For this coverage, the company will charge a premium payment. 

Companies will calculate premiums by combining various factors, such as chances of loss and expense and, above all, profit loadings. The latter implies a fee the company charges to cover contingencies(for instance, loss of capital) and business expenses.

Usually, the premium is periodical. Companies multiply the premium rate per insurance unit by the number of units purchased. In addition, insurance companies place insured clients into rate classes based on their driving history (vehicle insurance), health status (health and life insurance), or income levels. 

Home insurance premium

When buying real estate, you must consider how to find a good home insurance policy. Let’s look at what factors chip into affordable home insurance, meaning obtaining a home insurance premium on excellent terms.

Firstly, you must have an outstanding credit score. By default, homeowners with a bad credit score will pay higher premiums.

Secondly, the fire protection rating contributes to the premium you’re about to pay. You might want to investigate your area’s fire department’s reaction time. How long will it take them to reach you? Then, the department’s coverage area size and water pressure will also affect the insurance premium.

Thirdly, you should consider prior claims. The more claims you have on your property, the higher premiums your company will charge you. At the same time, the fewer claims you have (meaning you’ve been a responsible owner for a long time,) the lower your premiums will get.

Fourthly, the age of your property also determines premium rates. Typically, the older your house is, the more premium you’ll have to pay due to the building materials’ poorer (and perhaps more degrading) quality. Lastly, your home will have a specific replacement cost to return to its original good shape if it falls victim to a natural disaster.

Buyers' premium at a real estate auction

A buyer’s premium applies to private real estate auctions instead of public auctions, where properties go through foreclosure. Usually, specific banks feature real estate portfolios containing several homes for sale. Then, they hire real estate auction houses or companies like Hudson & Marshall to dispose of properties and turn them into cash asap.

However, a private auction doesn’t mean that regular home-seekers can’t show up. Furthermore, with properties sold at private auctions, you can settle the title insurance even a couple of weeks later. 

A buyer’s premium is the amount of money or a percentage you agree to pay in addition to your winning bid or above the sum you’re offering to purchase a house. Regularly, the amount can vary from one to five percent. The bank saves money on hiring agents to sell the property. Instead, it employs an auction house, making the buyers pay the extra fees instead of the seller. Lastly, the auction house receives the buyer’s premium for facilitating the event.

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