You may be considering buying life insurance and find some of the terminology confusing. If you’re wondering, “What is a premium in insurance?,” we outline here what the term means.
What’s a premium?
An insurance “premium” is the agreed amount that a person pays, such as monthly, for an insurance policy. Think of it as a monthly bill, as the cost of having insurance coverage.
How are life insurance premiums calculated?
Life insurance premiums are determined by several factors, including type of coverage, amount of coverage, likelihood of claims being made, age and behaviors of the covered person, and the state where the covered person lives.
An actuary – a person who calculates insurance and other kinds of premiums – assists in coming up with appropriate premiums based on the various factors involved.
These professionals determine risk through a combination of math, statistics, and related theory. Not only do they help insurance companies to take on a responsible amount of risk, but they also help you by working to make sure that the insurance company can pay in the event of a claim.
What is the difference between premiums and deductibles?
An insurance premium is the amount of money you pay – such as monthly – to obtain any type of insurance coverage.
A deductible is the amount you will pay out of pocket in the event of a claim, before your health, home or automobile insurance benefits begin.
There are no deductibles for life insurance. Deductibles typically apply to health, automobile, and property and casualty insurance.
How often will I pay my life insurance premium?
Premiums are often available in varied frequencies, which means you could decide to pay your premium monthly, quarterly, semi-annually, or annually. Check with your insurance provider to see if they offer discounts for certain payment frequencies.
Also, sometimes you can save money by setting up automatic payments from a bank account, or by making an annual payment instead of a monthly payment.
Buying life insurance is an important step in helping to keep your family financially protected should something happen to you. If you have questions, ask. Don’t let questions get in the way of understanding life insurance and responsibly preparing for the future.
