In insurance terminology, what is a premium?

A premium refers to the amount of money that a policyholder pays to an insurance company in exchange for coverage. This payment can be made on a monthly, quarterly, or annual basis and is essential for maintaining an active insurance policy. It is the primary source of revenue for the insurer, allowing them to provide services and cover claims made by policyholders.

The value of the insurance policy, cost of the insurer's operating expenses, and projected payouts over the policy's life are concepts related to insurance but do not define the premium itself. The premium specifically represents the agreed-upon payment the policyholder makes to secure the protection offered by the insurance contract. Understanding this concept is crucial for managing insurance costs and ensuring adequate coverage is maintained.