Premium

What Does Premium Mean?

In the context of insurance, a premium refers to the amount the policyholder must pay to maintain coverage. This payment may be made in installments over the coverage period or as a lump sum when the insurance contract is initiated.

A premium is also referred to as an insurance premium.

Insuranceopedia Explains Premium

The premium is essentially the cost of being insured—the amount paid to ensure the insurer covers the risks specified in the contract. Depending on the policy, it may be paid monthly, quarterly, bi-annually, or annually, or in a single lump-sum payment.

Premiums are calculated by actuaries, who are experts in assessing the likelihood of a person filing a claim based on various factors specific to the type of insurance and the coverage provided. For example, in life insurance, factors like age, health, and family medical history may be considered.

Once the policyholder begins paying the premium, the insurance company becomes liable for claims and benefits, as premiums are considered part of the insurance company’s income. Multiple consecutive unpaid premiums may constitute valid grounds for the insurer to cancel or terminate the insurance contract.