What is an insurance premium?

An insurance premium is defined as the amount an insured individual pays to an insurance company in exchange for coverage. This payment can be made on a regular basis—monthly, quarterly, or annually—and it secures the policyholder's protection against specific risks as defined in the insurance contract. The premium is essential because it is the cost of risk transfer; by paying this amount, the policyholder gains access to the benefits of the policy, such as financial protection against losses covered under the policy terms.

Understanding the role of the premium in the context of insurance is crucial. It is directly related to the insuring agreement, where the insurer commits to pay for certain risks in return for the premium. This is distinct from other aspects of an insurance policy, such as the total value of the policy, the benefits paid out in the case of a claim, or fees related to services from agents.