How do 'unit prices' work when it comes to pricing insurance?


Adam Cecil

Adam Cecil

Former Staff Writer

Adam Cecil is a former staff writer for Policygenius, a digital insurance brokerage trying to make sense of insurance for consumers. He is a podcast producer, writer, and video maker based in Brooklyn, NY.

Published September 9, 2015 | 2 min read

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Have an insurance policy lying around the house? Doesn’t really matter what kind – just pick your favorite. Somewhere in those pages, you’ll see something called a "unit price." You’ll notice that a unit price is not the same as your monthly or annual premium. However, the unit price is crucial to calculating just how much you’re paying for your insurance policy.

Let’s use life insurance as an example. With life insurance, you’re paying a premium so that, if you die prematurely, your beneficiaries will be given a death benefit. Imagine your death benefit as a bunch of buckets of coins (because that would be the most convenient way for your family to receive the death benefit, obviously). Your premium is what you pay collectively for all of those buckets of coins. The unit price is what you pay per bucket of coins.

Life insurance will commonly price out their death benefit in $1,000 units. So when you’re buying a policy with a $250,000 death benefit, what you’re really buying is 250 buckets of coins. Let’s say each one of those buckets of coins costs you a dollar per year. That makes your annual premium $250.

Not everyone gets the same unit price – your unit price is decided based on how risky the insurance company views you. In the case of life insurance, this is influenced by personal factors such as lifestyle and health. In the case of auto insurance, it would be influenced by your driving record.

When you’re shopping for insurance, no one is going to mention the unit price to you. Usually, agents will help you compare prices based on the annual or monthly premium, not the unit price. Unit prices are more useful for when insurance companies are submitting their premium calculations to governments for regulation.

If you do see unit prices advertised in a consumer setting, use caution, because it’s possibly being used by companies selling guaranteed life insurance to mislead consumers into thinking that their product is a good value. You’ll usually see this rare use of unit prices on a late night television commercial, attempting to confuse customers into believing that they can get life insurance for only $9.95 per month, when in fact, that’s the overly expensive unit price for an insurance product they don’t need.

Image: Pavel Rybin