Insurance Premium
What Does Insurance Premium Mean?
An insurance premium is the amount the insured pays to the insurer in exchange for coverage. This payment may be made in full or in installments, typically beginning once both parties agree on the terms of the insurance policy. The insured can be an individual or a group.
Insuranceopedia Explains Insurance Premium
High-income groups or individuals often purchase higher-priced policies. Conversely, due to their limited purchasing power, low-income groups or individuals can typically only afford policies with lower premiums.
The likelihood of an earlier claim affects the premium’s price. For example, a young person may pay a lower premium for health or life insurance compared to someone middle-aged, as younger individuals are statistically less likely to encounter health issues. This lower risk of early financial liability for the insurer results in a lower premium.
For the same reason, renewing a policy may lead to an increase in the premium. If, at the end of a policy period, the insured person has reached an age or adopted a lifestyle that raises their health risk, the insurer may decide to raise the premium.
Certain policies also come with higher premiums due to the potential cost of coverage. For instance, the property insurance premium for a ten-story building in a large city is likely to be more expensive than that for a two-bedroom house in the suburbs.
