What is a "premium" in insurance terms?

In insurance terminology, a "premium" refers specifically to the amount of money that the insured pays to the insurance company in exchange for coverage. This payment is typically made on a regular schedule, such as monthly, quarterly, or annually, and is essential for keeping an insurance policy active.

When an individual or entity buys insurance, they are essentially paying a premium for the promise of financial protection against certain risks or losses outlined in their policy. The premium amount is determined based on various factors including the type of coverage, the insured's risk profile, and underwriting guidelines established by the insurer.

Understanding premiums is fundamental to grasping how insurance works, as they are the primary source of income for insurance companies, allowing them to cover claims made by insured individuals while also being structured to account for the costs of risk management.