A premium is the payment a policyholder makes to keep insurance coverage active.
Insurers calculate premiums to reflect expected claims, operating costs, capital requirements, and other factors. Depending on the product, pricing can consider age, location, driving history, health information, property characteristics, coverage limits, and the chosen deductible. The exact factors and their legal use vary by jurisdiction.
Premiums may be paid monthly, quarterly, annually, or according to another schedule. A missed payment can lead to a grace period, cancellation, or lapse, depending on the contract and applicable rules. Some policies allow payment through an escrow arrangement, such as a mortgage account for homeowners insurance.
A premium is different from a deductible. The premium buys the promise of coverage, while the deductible is the portion of a covered loss the policyholder pays before insurance responds. A claim is a request for payment, and a dividend is a distribution that may occur in some insurance arrangements.