Premium
Definition
The amount paid to an insurance company for coverage. Premiums are typically paid annually, semi-annually, quarterly, or monthly, and are based on risk factors and coverage amounts.
Example
A homeowner pays an annual premium of $1,200 for a property insurance policy covering their $300,000 home. The premium reflects the home's location, construction type, coverage limits, and deductible amount.
In Practice
Premiums are calculated using actuarial principles based on loss history, risk exposure, and coverage terms. Factors affecting premiums include location, property characteristics, claims history, credit score, and coverage selections. Premiums may be adjusted at renewal based on loss experience. Unpaid premiums can result in policy cancellation.