Why do I have to pay premiums in advance?

Insurance premiums are due in advance of coverage being extended, and the non-payment of premium will result in policy cancellation. Insurance companies calculate the premium down to the day, and apportion your premium due on that basis. You have probably noticed that you pay a little more premium at the start of your policy, and sometimes do not have payments towards the end of the policy term. By calculating and collecting premium in advance, the insurance company will not extend you any coverage prior to your payment of premium.

When you purchase home insurance, you are protecting yourself from future claims that will cause you financial loss. However, the risk of loss is uncertain and insurance, to a certain extent, is a gamble. If you were to pay insurance in arrears, such as you do with your home mortgage, the insurance company would have extended coverage and potentially suffered a loss without you paying any premium. If this practice were allowed, insurance companies would go out of business because consumers would only pay premiums after they have suffered a claim.

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