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    Insurance Policy Components

    When choosing an insurance policy, it is important to understand how insurance works.

    An agency like Armellino Agency Insurance understands the concepts and therefore their expertise goes a long way in helping you choose the policy that best suits your needs. For instance, full coverage car  insurance may or may not be the right type of auto insurance for you. There are three components of any type of insurance (premium, policy limit, and deductible) that are crucial.


    A policy’s premium is its price, typically expressed as a monthly cost. The premium is determined by the insurer based on your or your business’s risk profile, which may include creditworthiness.

    For example, if you own several expensive automobiles and have a history of reckless driving, you will likely pay more for an auto policy than someone with a single mid-range sedan and a perfect driving record. However, different insurers may charge different premiums for similar policies. So finding the price that is right for you requires some legwork.

    Insurance Policy Limit

    The policy limit is the maximum amount an insurer will pay under a policy for a covered loss. Maximums may be set per period (e.g., annual or policy term), per loss or injury, or over the life of the policy, also known as the lifetime maximum.

    Typically, higher limits carry higher premiums. For an auto insurance policy, the maximum amount the insurer will pay is referred to as the policy limit, which is the max amount paid for liability in the event of an accident.


    The deductible is a specific amount the policy-holder must pay out-of-pocket before the insurer pays a claim. Deductibles serve as deterrents to large volumes of small and insignificant claims.

    Deductibles can apply per-policy or per-claim depending on the insurer and the type of policy. Policies with very high deductibles are typically less expensive because the high out-of-pocket expense generally results in fewer small claims.