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.
Escrow
Money held by a neutral third party — either during a home purchase, or by your lender to pay property taxes and insurance.
Emergency Fund
Cash set aside in an accessible account to cover unexpected expenses or a loss of income without taking on debt.
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