Premium
The amount you pay—monthly, quarterly, or annually—to keep an insurance policy in force.
An insurance premium is the price you pay for coverage. Insurers calculate premiums based on the statistical likelihood that they will need to pay a claim for your specific risk profile. For auto insurance, factors include your driving record, age, vehicle type, and location. For health insurance, age, tobacco use, and plan tier matter. For homeowners insurance, the replacement cost of your home, construction type, location, and claims history all affect the rate.
Premiums can be paid in various schedules: monthly, semi-annually, or annually. Paying annually often yields a 5–10% discount over paying monthly because it reduces billing and processing costs for the insurer. Some auto and renters insurers also offer discounts for paying in full upfront.
Shop premiums at every renewal and when your circumstances change. A clean driving record, good credit score, bundling policies, completing safety courses, or installing home security systems can all lower premiums meaningfully. Accepting a higher deductible in exchange for lower premiums is a legitimate strategy if you have the savings to cover the deductible in an emergency.
Real-World Example
After installing a monitored security system, the homeowner's annual premium dropped by $180, from $1,440 to $1,260.