Premium

A premium is what you pay an insurer in exchange for cover. It is paid monthly or annually, and those payments form the pool from which claims are met.

A premium has two parts: the risk portion that funds actual claims, and the loading that covers the insurer's operating costs, commissions and profit. Identical cover costs different amounts at different insurers largely because of that second part.

Premiums are set by age, sex, health, occupation, and the scope and term of cover. Because younger applicants pay less, buying cover you genuinely need earlier often costs less in total.

The practical ways to reduce a premium are raising the deductible and stripping out riders you do not need. Adding riders to cover small losses raises the premium quickly, while the limit for the large event that actually matters often stays unchanged. It also helps to know that the payment period and the cover period differ. Twenty-year payment with cover to age eighty means you pay for twenty years and stay covered until eighty. Confusing the two leads to paying far longer than necessary.