Translation: Insurance Premiums = Insurance premiums

Insurance premiums (Insurance Premiums) — These are financial amounts (whether a one-time payment or monthly/annual periodic payments) paid by an individual or company (the insured) to an insurance company (the insurer) under a contract (insurance policy). In return, the insurance company undertakes to compensate the insured or provide financial protection against potential losses or risks (such as accidents, illnesses, or war risks) during a specified period.

Simplified definition: They are similar to a “protection subscription” that you pay to a personal guard. You pay a small, ongoing amount whether or not you are exposed to a risk; in return, if something unfortunate happens to you (such as a car accident or a fire at your factory), this “guard” (the insurance company) steps in to cover the substantial financial losses that you cannot bear on your own.

How it is calculated: Insurance premiums are calculated based on actuaries’ assessment of the level of “risk” and consist of: insurance premium = the expected basic cost of the risk + administrative expenses + the insurance company’s profit margin. The amount determined for the beneficiary depends on several factors: the likelihood of the risk occurring, the value of the insured item, the insurance history (accident record), age, and the type of coverage required.

Note: The fundamental difference lies between the insurance premium (Premium) and the deductible (Deductible). The premium is the amount you pay regularly and consistently to maintain insurance coverage, while the “deductible” is a small portion of the loss that you pay out of pocket only when an accident occurs, before the insurance company pays the remainder of the compensation.

Example: Suppose there are two companies (Company A) and (Company B) engaged in exporting goods, and each owns a shipment worth 10 million riyals.

  • Company (A): Paid a “marine insurance premium” of 50,000 riyals to the insurance company.
  • Company (B): Decided to save the 50,000 riyals and did not purchase an insurance policy.
  • Outcome: If both shipments sank due to a storm or a geopolitical crisis, Company (A) would be compensated by the insurance company for the full 10 million riyals (subject to the policy terms), thereby saving its capital and business thanks to paying the insurance premium. Company (B), meanwhile, would lose the entire 10 million riyals and face potential bankruptcy because it wanted to save the cost of the premium.

What does this mean for you?

  • Protecting your financial stability: Paying a small, known, predetermined amount (the premium) protects you from unknown, potentially catastrophic financial surprises in timing and magnitude that could destroy your budget.
  • An indicator of the level of risk: A higher insurance premium requested from you (whether for your car or your company) is a direct message from the market that your level of risk is high or that your record contains previous accidents, requiring you to improve your risk management.
  • Compliance is a condition for protection: If you stop paying your insurance premiums on time, your insurance coverage lapses (Lapse), and you will not be entitled to claim any future compensation, even if you had paid consistently for many previous years.

Frequently asked question: Are insurance premiums refunded if the year ends and I have not had an accident or filed a claim?

Answer: No. In most general insurance policies (such as car, property, and health insurance), premiums are not refunded. What you paid was in exchange for “providing protection and transferring risk” throughout that year, and you received this service even if no disaster occurred. However, companies often reward you for a clean record with a discount on the following year’s premium (known as a No Claims Discount). (Note: Some cumulative life insurance policies that refund part of the amount are excluded.)