Additional Resources

  1. Preference Toward Risk, Risk Premium, Indifference Curves [ocw.mit.edu]
  2. The Economics Of Climate Change [are.berkeley.edu]
  3. Econport [econport.gsu.edu]
  4. The General Economic Premium Principle* [citeseerx.ist.psu.edu]
  5. Econ 149: Health Economics Problem Set Iv (extra Credit) Answer Key ... [socsci.uci.edu]
  6. The Equity Premium: A Puzzle [casee.asu.edu]

Premium

Premium, in the simplest of terms, is the total cost of any option. It is basically the sum of your option’s time and intrinsic value. When it comes to insurance, it is the amount that is required by an insurer in order to give coverage under an insurance plan for a given time period.

One common example of insurance premium is auto insurance. An individual pays a premium every month in order to get protection against theft and any damage.

Understanding Premium

Insurance premium refers to the amount that a company charges for active coverage. The premium that the person pays is determined by factors like health, age, socio-economic background, and the kind of area that a person lives in. People pay the premium in small payments over the year and the amount of premium may change with time.

If an individual fails to pay the premium, the policy is void and the companies cannot make any claims against it.

Things That Premium Covers

Premium coverage is generally stated in detail in the insurance policy and the services provided depend on the type of policy that a person has opted for. Here are some types of services that are covered by premium:

Life Insurance

Life insurance pays a sum when the policy holder dies, to the dependents mentioned in the will. It may even cover the expenses that are related to death that include any debt and even the funeral arrangements.

Health Insurance

Health insurance covers mental health services, expense of doctor visits, surgical procedures, and the cost of medicines. This is just a general overview because each plan differs according to a person’s needs.

Car Insurance

The premium covers the damage that might be caused to a vehicle. Vehicle services generally cover the same types of services.

Home Owners Insurance

This is paid in order to cover the damage to the home in case of a natural disaster, fire, or theft. Renter’s coverage is similar to this, and pays the damage that is caused by the policy holder.

Change in Rates

There is a change in premium rates at times due to a higher number of claims on the policy. In the case of property insurance, the rates go up if the property is relocated to a threatening area.

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