What is a Premium? Everything You Need to Know

A premium is an amount of money paid periodically to the insurer by the insured for covering his risk. In simpler terms, it's the cost of insurance, paid in regular installments.

In this guide, you'll learn:

The different types of premiums
Factors influencing premium costs
Ways to potentially lower your premium

Written by

John Ramsey

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Updated on

June 25, 2024

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At Eternal Insurance Agency, we strive to provide reliable and trustworthy information to our clients. We understand the importance of clarity in the insurance industry, and we believe that transparency is key to building trust with our customers.

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To ensure the accuracy and relevance of our information, we primarily rely on the following sources:

Government sources: We prioritize definitions and explanations from official government entities, including both federal and state agencies, as they often provide the most authoritative interpretations of insurance terms.
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Insurance contracts: In some instances, we may reference actual clauses from insurance contracts provided by companies that Eternal Insurance Agency is contracted with or that our licensed advisors represent, to further illustrate how specific terms are used in a practical context.

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While we strive for accuracy and comprehensiveness, this glossary is for informational purposes only and should not be considered a substitute for professional insurance advice.

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Glossary

Premium

Types of Premiums

Insurance Premium: The most common type, this is the payment you make for health, life, car, or home insurance.
Stock Premium: In the financial world, a premium can refer to the amount a stock price exceeds its original issue price.
Option Premium: This is the price paid for the right (but not the obligation) to buy or sell a specific asset at a predetermined price within a set timeframe.

Factors Influencing Premium Costs

Risk: The higher the perceived risk, the higher the premium. For example, a young driver with a history of accidents will likely pay more for car insurance.
Coverage: More comprehensive coverage typically comes with higher premiums.
Deductible: The amount you agree to pay out of pocket before insurance kicks in. A higher deductible usually translates to a lower premium.
Location: In areas prone to natural disasters or with higher crime rates, premiums can be higher.

Ways to Potentially Lower Your Premium

Shop around: Compare quotes from different insurance providers to find the best deal.
Bundle policies: Many insurers offer discounts for bundling multiple policies, such as home and auto insurance.
Increase your deductible: Opting for a higher deductible can lower your monthly premium.
Maintain a good credit score: In some cases, your credit score can influence your premium rates.
Ask about discounts: Inquire about discounts for good driving records, students with good grades, or for installing safety features in your home or car.

For those concerned about the cost, our licensed insurance agency can help find insurance options to lower the cost or to cover the procedure. If seeking a licensed professional, consider our services. Our insurance advisors and client support team are here to assist you with your insurance needs.

Conclusion

This guide has offered a comprehensive overview of premiums. For those seeking to deepen their understanding, we recommend exploring our guide on insurance, which dives into the different types of insurance and their implications in greater depth.

What is a Premium? Everything You Need to Know

Table of Content

Key Takeaways:

Types of Premiums

Factors Influencing Premium Costs

Ways to Potentially Lower Your Premium

Conclusion

Sources

Premium FAQ

What is the difference between premium and deductible?

How can I lower my insurance premium?