Insurance term
Premium
What you pay for cover
Definition
The amount charged by the insurer for a policy, usually stated per month or per year, reflecting the insurer's assessment of risk, its expenses, and applicable taxes or levies.
In more detail
A premium is not a savings balance. It buys the insurer's obligation to pay defined claims during the policy period, and it is priced against the pooled experience of similar risks rather than the individual's own claim history alone.
Because insurers use different rating models, quotes for identical cover vary. Comparing premiums is only meaningful when the sums insured, deductibles, and exclusions match.
Example
Raising a deductible normally lowers the premium, because the policyholder absorbs more of each claim.
Glossary entries are general explanations, not advice. Where a term appears in a contract or policy, the definition in that document governs.