A premium is the consideration paid for an insurance contract by someone seeking protection from predefined risks. In exchange for a premium, the insurer promises to indemnify the insured or other beneficiaries under certain conditions or circumstances. The person or entity who pays the premium is referred to as the policyholder. A premium payment may consist of one lump sum or, as is more common, periodic installments for the life of the contract.
A portion of the premium can be referred to as the earned premium, to reflect how much of the coverage period has elapsed. Whether a premium is earned or unearned can have an effect on the tax liability of insurance companies.
[Last updated in January of 2024 by the Wex Definitions Team]