What does the term premium refer to in insurance?

The term premium in insurance refers to the amount paid for a contract of insurance. This payment is typically made on a regular schedule, such as monthly or annually, and is essential for maintaining active coverage under the policy. The premium is calculated based on several factors, including the type of insurance, the risk factors associated with the insured entity or person, and the coverage limits.

Understanding the premium is crucial for individuals as it directly impacts their budget and financial planning. It is important to note that while deductibles, bonuses, and interest on unpaid premiums are relevant to the broader context of insurance, they do not define what a premium is. The premium is essentially the cost of the insurance protection itself and is a foundational concept in the field of insurance.