What Is a Premium?

What Is a Premium?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A premium, in the context of finance and insurance, refers to the regular cost that an individual or business must pay for insurance coverage. Once an insurance policy is agreed upon and put into effect, the premium is typically paid on a regular basis such as monthly, quarterly, or annually. These payments are then utilized by insurance companies to cover any recorded risks.

Related Questions

1. How is an insurance premium determined?

The amount of an insurance premium is determined based on multiple factors like the type of coverage, the risk profile of the insured party, the location of the insured property and the amount of coverage purchased. For instance, someone with a high-risk job will likely pay a higher premium for life insurance than someone with a less risky occupation.

2. Is it possible to lower insurance premiums?

Want More Financial Tips?

Get Our Best Stuff First (for FREE)
We respect your privacy and you can unsubscribe anytime.

Yes, strategies to lower insurance premiums can include raising your deductible, bundling insurance policies, installing safety features, maintaining a good credit score, and regularly comparing insurance rates from different providers. Remember, however, that the goal is not just to reduce premiums but to achieve the right balance between cost and coverage.

3. Are insurance premiums tax-deductible?

It depends on the type of insurance and your specific situation. Certain types of business insurance premiums can be deductible as a business expense. Health insurance premiums can also often be tax-deductible. You should consult with a tax professional to understand how this applies to you.

4. What happens if you don’t pay an insurance premium?

If you fail to pay your insurance premium on time, you may receive a grace period to make the payment. However, if you still don’t pay after the grace period, your policy may get canceled and you will be without coverage until you secure a new policy.

5. What is a premium in investments?

In the investment world, a premium also refers to the amount by which a security, like a bond or stock, is priced above its actual face value. A security is often sold at a premium when its interest rate is higher than the current market rates.