An insurance premium is the amount of money the insurance company charges you for the insurance policy you buy from it. The insurance premium is the cost of your insurance.
Here are the basics to help you understand what an insurance premium is and how it works.
Definition and Examples of an Insurance Premium
Everyone knows insurance costs money, but one term that may be new when you first start buying insurance is “premium.” Typically, the premium is the amount paid by a person (or a business) for policies that provide auto, home, healthcare, or life insurance coverage.
For example, if you pay $212 per month to keep your car insured, your yearly insurance premium would be $2,544. You may have purchased a six-month policy, which would make your insurance premium $1,272.
How Insurance Premiums Work
Insurance premiums usually have a base calculation. Then, based on your personal information and location, you may have discounts that are added to the base premium that reduces your cost.
In order to get preferred rates, or more competitive or cheaper insurance premiums, additional information is used. You can learn about these factors in greater detail in the section about the four factors that determine the premium. https://b6963095b8baa63a61d52e3072e1d1a0.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
The insurance premium may be paid on an annual, semi-annual, or monthly basis. If the insurance company decides that it wants the insurance premium paid upfront, it may also require that. This is often the case when a person has had their insurance policy canceled for non-payment in the past.
The premium is the basis of your insurance payment. An insurance premium may be considered taxable income to you in certain cases (for example, coverage for group-term life insurance that exceeds $50,000 and is carried directly or indirectly by an employer).1 Service fees might be added to it, depending on the local insurance laws and the provider of your contract. The National Association of Insurance Commissioners’ Guidelines or your State Insurance Commissioners’ office can provide you with more information on your local regulations if you have a question about fees or charges on your premium