What Is an Insurance Premium?
While it can be tempting to grumble about the cost of insurance, it can pay off (literally) when the unexpected happens.
An insurance premium is an amount you pay a company in return for claims coverage. Enrollee premiums provide income for the insurance company and make it liable to pay out if you make a valid claim against your policy. Businesses and individuals may pay premiums for products such as life, healthcare or auto insurance.
Generally, you can choose whether to pay your insurance premiums monthly or yearly. Some policies also let you pay quarterly or semi-annually. However often you choose to pay, failure to keep up with your scheduled premium payments could result in losing your coverage.
Most insurance premiums are paid monthly. The primary advantage of paying monthly premiums is that it breaks the amount owed into more manageable payments. However, paying monthly usually means that interest accrues on your account. Therefore, paying yearly can reduce the amount of money you pay for insurance overall.
All private insurance policies charge premiums. These include:
- Whole and term life insurance
- Auto insurance
- Homeowners insurance
- Renters insurance
- Healthcare insurance
- Liability insurance
- Travel insurance
- Pet insurance
- Disability Insurance
Businesses also pay premiums for various types of business insurance, including worker's compensation, malpractice and business interruption insurance.
However, you won't pay regular premiums if you purchase single-premium life insurance, because you exchange a single lump-sum payment for a guaranteed death benefit. While strictly a premium, this payment fully funds your policy, and you won't need to make any further premium contributions to maintain your coverage.
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