Definition - What does Premium mean?
A premium, in the context of insurance, refers to the amount the policyholder must pay to be insured. It may be paid in installments during the period of the coverage or as a lump sum once the contract of insurance is executed.
A premium is also known as an insurance premium.
Insuranceopedia explains Premium
In essence, the premium is the cost of being insured, or the amount paid so the insurer covers the risks stipulated in the contract. Depending on the policy, it must be paid every month, every quarter, bi-annually, or annually. It may also be paid in one single lump sum payment.
Premiums are computed by actuaries who are experts in determining the likelihood of a person filing claim on the basis of several factors that depend on the exact type of insurance and the coverage provided. For instance, this may include age, health, and family medical history for life insurance products.
Once the policyholder starts paying the premium, the insurance company becomes liable for claims and benefits. This is because premiums are regarded as part of the income of an insurance company. Premiums that are unpaid consecutively multiple times may constitute valid grounds for the cancelation or termination of the insurance contract in favor of the insurance company.