What is an insurance premium?
An insurance premium is the financial cost of an insurance policy. It is the fee paid by the insured to the insurer for assuming the risk of an accident.
An insurance premium is typically paid as a lump sum or in installments (such as monthly or semi-annual payments).
Insurance companies use the premiums for overhead costs and to fund accounts for later payment of claims.
The Cambridge Business English Dictionary defines insurance premium as “an agreed amount of money that you pay to an insurance company for insurance, either as one payment or as one of a series of payments.”
The premium may vary considerably from one insurance contract to another, given that the amount is proportional to the risk assumed by the insurer.
Factors that play a role in determining a policy’s insurance premium include:
- The likelihood of a claim being made
- Where the person or business is located
- Credit score
- Marital status
You may have the option to pay an insurance premium of $1,200 in one lump sum or at a monthly rate of $100. However, it’s important to bear in mind that opting for monthly payments can sometimes incur installment fees, ramping up the true cost of the premium.
Insurance premiums can increase after a policy ends
Insurers may decide to increase insurance premiums after a policy ends. This could be due to claims that were made in the previous policy period or because it’s become more expensive for the insurer to provide coverage.