What is insurance premium?
The premium is the price of the insurance. The policyholder (also called the insured) is obliged to pay the premium in accordance with the conditions stipulated in the insurance policy. The insurance company also undertakes, through the collection of the same, to indemnify or pay a capital, income or other agreed benefits in the case of the event for which the risk is covered.
The insurance premium is established, among other factors, according to the type of risk insured, the coverage contracted in the policy, the duration of the contract or the sums insured.
The form of payment of the premium can be:
- Single payment for the entire duration of the insurance
- Periodically, usually every year for the duration of the insurance.
In addition, the premium can be fixed (the same amount is always paid) or variable (the amount varies depending on how the insured risk evolves).
How an insurance premium is calculated
To calculate the insurance premium, insurers estimate and quantify the risk. This amount, called pure premium, would be the amount the company needs to be able to bear the insured risk. Other expenses, surcharges or taxes are added to this figure to make up the total premium that the policyholder will eventually pay.