So the next time you buy insurance, here are some of the reasons why your insurance premium is priced as such.

An insurance premium is the sum of money the insurance company is charging you for the insurance policy you are purchasing. It represents a liability in that your insurer must provide coverage for claims being made against the insurance policy by the time you need it.

The price of an insurance premium for a given policy is not fixed. It can vary depending on different internal and external factors, including the risk associated with the policy. The rule of thumb is the higher the risk, the higher the price. For instance, a claim being made against a driver with a clean driving record may be lower compared to a driver with a lot of driving violations. Insurance companies hire people called “actuaries” to study the risk levels and issue premium prices for a given insurance policy.