A Handy Guide on Insurance Premiums & Deductibles

As a business owner, or a homeowner in Alberta, you would have interacted with your insurance broker quite a few times while purchasing insurance. During these engagements have you ever come across insurance terms that are used very often, but are unfamiliar to you? 

Experts point out that two of the mostly widely used insurance terms are “Insurance Premium” and “Deductible”. Incidentally, these two terms also happen to be the ones around which there is a lot of misunderstanding, as many people don’t understand what these terms really mean; and what impact do they have on their insurance policies. 

It is here that a Business Insurance Broker plays a crucial role. The broker removes the insurance jargon from the insurance terms and conveys you the meaning of the terms in plain English, so that you are able to understand them properly. 

What is an insurance premium?

In an insurance contract, the insurer agrees to cover the risk of the insured. Therefore, the risk gets transferred from the insured to the insurer and an insurance policy gets issued. Insurance premium is the payment that is made by insured to the insurer for covering this risk and premium amount is mentioned in the insurance policy. This payment is made periodically to the insurer.

What is a deductible?

A deductible is a payment that is made by the insured to the insurer when lodging a claim under the insurance policy. The amount of deductible is mentioned in the insurance policy. It represents the portion of money that the insured has to pay on its own, before the insurer pays the remainder.

Frequency of payment

While insurance premium is paid mostly on an annual basis, a deductible is paid only when an insurance claim is lodged.  

How is insurance premium calculated?

Although the calculation of insurance premium depends upon many factors, the underlying philosophy of insurance companies is very simple. 

Their philosophy is that the premium should as closely as possible reflect the probability of the occurrence of the event for which the insured is likely to suffer a loss and lodge a claim. In other words, your premium reflects how likely you are to submit a claim. 

In Canada, the insurance industry is regulated and insurers have to be in compliance of rules related to insurance premiums.

What are the factors that influence insurance premium? 

Some of the most important factors that influence insurance premiums are as follows: 

Auto insurance

Vehicle model and make

Year of its manufacture

Your driving history

Your complete address 

Home insurance

Your complete address

Size of your house

Is it the house that you mainly use, or is it your vacation home? 

How is the heating done in your house? 

Is your house exposed to water and fire hazards? 

What is the condition of electrical and plumbing infrastructure in your house? 

Business insurance

What is your nature of business? 

What are the types of equipment that you need in your business. 

Complete address of the places from where you conduct your business. 

Relationship between insurance premiums and deductibles

Looking at the above, we can easily conclude that under any insurance policy, there should now not be any ambiguity whenever terms such as “insurance premium” or “deductible” are used. 

Secondly, the insured should realize that there is a direct relationship between the insurance premium and the deductible. The higher the amount of deductible, the lower is the amount of insurance premium and vice versa. 


Arriving at an optimum balance between the amount of insurance premium, and the amount of deductible is an important point and has to be determined by looking at various factors and matching them with your financial needs. 

For this you need to engage an experienced insurance broker who can answer all your questions related to insurance premiums and deductibles and recommend you a suitable insurance policy that covers your risks adequately and is within your budget.

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