What is the definition of "premium" in insurance?

The definition of "premium" in insurance refers to the price paid by the policyholder for coverage. This payment is typically made on a regular basis, such as monthly or annually, and it ensures that the policyholder maintains their insurance coverage. Premiums are crucial for insurance companies, as they provide the necessary funds to cover claims made by policyholders and to operate their business effectively.

In the context of insurance, the premium does not represent the total claims paid by the insurer or the value of the insurance policy itself. It is not the interest rate applied to life insurance policies either, but rather a fixed cost that a policyholder agrees to pay in exchange for the protection and benefits provided by the policy. Understanding the concept of premiums is fundamental for anyone studying insurance, as it is a core component of the financial relationship between insurers and insured individuals.