Investopedia defines insurance premium as "the amount of money that an individual or business must pay for an insurance policy." When you have an insurance policy, you receive coverage from the insurance provider in exchange for paying its premiums. If you contact an insurance agent and ask for a quote on the cost of a policy, the amount quoted to you represents the "premium" for that policy.
Factors Impacting Insurance Premiums
The term "premium" is used to describe the fee associated with all types of insurance coverage. A variety of factors impact the premium amount for any given policy. For example:
- Auto: Premiums for vehicle insurance are impacted by things like driver characteristics (age, driving record), specifics of the vehicle being covered (make, model, year, features that impact value), and geographic location. The premium amount is also affected by the specific type of auto coverage (liability-only or comprehensive) and things like the deductible amount and the limits of liability.
- Life: Premiums for life insurance policies are affected by the person's age, whether the individual smokes, and medical history. Prices also vary widely for term policies versus whole life policies, each of which has unique advantages and drawbacks.
- Health insurance: The cost of health insurance is affected by age of the insured individuals(s), smoking status (smoker vs. non-smoker), and the number of people covered on the policy (policyholder only, + spouse, + kids, or family). Health premiums are also affected by plan type and specific terms (copay versus major medical, etc.).
These are just a few basic examples of the many factors that impact the cost of common types of insurance coverage. There are, of course, many other kinds of insurance policies for individuals and businesses. Each is impacted by factors relevant to risk.
Paying Insurance Premiums
Insurance premiums can be quoted in an annual or monthly amount. Health insurance premiums are generally quoted monthly and, according to MedicalMutual, that is how most people pay them. Automobile and life insurance policies are typically quoted in terms of an annual amount though policyholders can elect to pay their premiums monthly or quarterly instead of once time per year. According to PersonalHub (auto) and Policygenius (life), it is almost always cheaper to make annual payments on auto and life policies, as insurance companies typically add-on fees when policy holders elect to make installment payments. Discuss details regarding premiums payment options for any policy you are considering with your agent and make sure you understand all the fine print.
Consequences of Premium Nonpayment
If you fail to pay the premium for an insurance policy, the insurance company can cancel the policy and deny coverage of any claims per the specific terms outlined in the policy. Most policies include specific provisions regarding what happens if there is a lapse in payment of premiums.