What Is Property Insurance Premium? 
Property insurance is based upon the concept of shared risk . That means that the chances of experiencing a fire that would destroy your home are really low , however , if that were to occur the loss would be quite high . Others property owners face a similar dilemma . If you could share your risk with others you would pay a small amount to avoid losing a large amount . When risk is shared it is considered a pool . Insurance companies form pools and allow people to share the risk of a large loss in exchange for a small loss , the property insurance premium . The amount of this insurance premium is determined by professionals known as actuaries who compare the loss history of millions of pieces of property to develop statistical probabilities of loss for a certain defined piece of property . Additionally they compute the probabilities of different pieces of property and calculate a premium for those losses as well . If you have a home in the forest and I have exactly the same home but live in a suburb the chances are greater that you would experience a catastrophic loss than that I would . This difference is developed mathematically by reviewing millions of losses over a long period of time . As a result we can both be in the same pool but you would pay more than me because you represent a greater risk to the pool . In order to be permitted to do business in your state the insurance commissioner of your state must approve the premiums charged by your insurance company . The commissioners chief concern is that the insurance company is able to meet the promises that it makes . Comparing the losses sustained over time with the premium income of the company helps the commissioner determine the ability of the company to keep its promises -LRB- even in very trying times . -RRB- This then develops into the premium that the company charges you for coverage . It is based on statistics and the companys experience and represents your share of the cost of insuring a pool of risks so that there is sufficient money to take care of a catastrophic loss or anything in between . 