Premium
The amount you pay an insurer — monthly, quarterly, or annually — to keep a policy in force.
What Premium means
A premium is the price of insurance coverage. Miss it and the policy lapses, regardless of how long you have paid in.
Premiums are priced on expected risk. Auto insurers weigh driving record, vehicle, and location; life insurers weigh age and health; homeowners insurers weigh construction, claims history, and increasingly, climate exposure.
Premium and deductible trade off against each other. Raising your deductible lowers the premium because you are retaining more risk — which only makes sense if you hold enough cash to cover that deductible without borrowing.
The cheapest premium is not automatically the best value. Coverage limits, exclusions, and the insurer's claims-handling reputation determine whether the policy actually protects you when it is needed.
In investing, "premium" carries an unrelated meaning: the amount by which a price exceeds some reference value, as when a bond trades above its face value.
Related terms
Deductible
The amount you pay out of pocket on an insurance claim before your insurer starts covering costs.
Out-of-Pocket Maximum
The most you can pay for covered care in a plan year, after which your health plan covers 100% of further costs.
Term Life Insurance
Life insurance that covers a fixed number of years and pays out only if you die within them, which is why it is cheap.
Whole Life Insurance
Permanent life insurance that never expires and builds a cash value, at a premium many times that of comparable term coverage.
Grace Period
A window after a due date, or after a purchase, during which no interest or late penalty is applied.
PMI (Private Mortgage Insurance)
Insurance that protects the lender when you put down less than 20%, added to your payment until you build enough equity.
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