Insurance Premium
The regular payment made to an insurance company to keep a policy active.
What is Insurance Premium?
An insurance premium is the amount a policyholder pays to an insurer — monthly, quarterly, or annually — to maintain coverage. It is the price of transferring financial risk to the insurer. Premiums are calculated based on the insurer's assessment of the risk being covered: for health insurance, factors include age, location, and plan type; for auto insurance, driving record and vehicle; for life insurance, age, health, and coverage amount. The premium is distinct from the deductible (amount paid per claim) and copay (flat fee per service). Insurers must price premiums to cover expected claims, operating costs, and earn a profit, subject to state regulatory oversight.
Example
A 40-year-old nonsmoker pays a $60/month ($720/year) premium for a $500,000 20-year term life insurance policy. The insurer collects premiums from many policyholders and uses them to pay the relatively rare death claims that occur during the policy term.
Source: NAIC — Insurance Basics