insurance premium
The amount paid periodically to an insurance company in exchange for coverage, paid monthly, quarterly, or annually.
Example
“Her auto insurance premium was $1,200 per year — $100 per month for comprehensive and collision coverage.”
Memory Tip
Insurance PREMIUM = the PRICE you pay for coverage. Pay regularly to stay protected.
Why It Matters
Understanding insurance premiums helps you budget for essential financial protection and compare coverage options across different providers. By knowing what you will pay periodically, you can make informed decisions about which insurance products fit your financial situation and ensure you maintain adequate protection without overspending.
Common Misconception
Many people believe that paying a higher premium automatically means they will receive better coverage or larger payouts when they need to file a claim. In reality, the premium amount is separate from coverage limits and deductibles, so a high premium does not guarantee superior benefits or faster claim processing.
In Practice
Sarah pays a car insurance premium of $120 per month, which equals $1,440 annually, in exchange for liability coverage up to $100,000 and comprehensive coverage with a $500 deductible. When she gets into an accident causing $3,000 in damages, she pays the $500 deductible and her insurance covers the remaining $2,500, regardless of how much premium she had paid over the years.
Etymology
INSURANCE (protection against risk) PREMIUM (price paid for benefit). The price of INSURANCE coverage.
Common Misspellings
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Related Terms
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See Also
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