Premium Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Premium, written in plain English, along with examples of how it is used.
What is Premium?
n.Amount pain in installments or in single payment to cover the insured amount specified in an insurance policy by the insured to the insurance company.
History and Meaning of Premium
The term "premium" is commonly used in the insurance industry and refers to the amount of money an insured person pays to an insurance company in exchange for coverage. The concept of insurance dates back centuries, with cultures around the world practicing forms of insurance long before the modern industry as we know it existed. However, the term "premium" specifically became popular in the 19th century when insurance companies began offering standardized policies to individuals and businesses.
In insurance, the premium is determined based on several factors such as the type of coverage offered, the likelihood of the event being insured against occurring, and the potential cost of a payout. Premiums can be paid in different ways depending on the policy, including a lump sum payment, monthly installments or annually.
Examples of Premium
John purchased a comprehensive car insurance policy and had to pay a premium of $800 for a year of coverage.
Mary's employer offered health insurance and required her to pay a monthly premium of $100.
Tom purchased a life insurance policy that required him to pay a premium of $150 every six months.
Susan's business purchased liability insurance which required an annual premium of $500.
Mark's homeowner's insurance policy required him to pay a premium of $1,200 per year.
Legal Terms Similar to Premium
- Deductible - this is a predetermined amount the policyholder must pay out-of-pocket before receiving any benefit from an insurance policy.
- Co-pay - this is a specific amount that a policyholder must pay for a healthcare expense.
- Claim - this refers to an application made to an insurance company requesting payment based on the terms of the policy.
- Policy limit - this refers to the maximum amount the insurance company will pay out on a policy.
- Underwriting - this is a process that an insurer uses to evaluate the risk of insuring a potential policyholder.