How is "premium" defined in the context of insurance?

In the context of insurance, "premium" refers to the sum paid for insurance coverage, often on a periodic basis such as monthly, quarterly, or annually. This payment is made by the policyholder to the insurance company in exchange for the promise of coverage against certain risks, such as property damage, liability, or health care costs. The premium is a critical element of the insurance contract, as it represents the insurer's compensation for taking on the risk associated with providing the policyholder's coverage.

By contrast, the payout amount for claims represents the financial loss compensated to the policyholder after a covered event occurs, which is unrelated to the premium itself. The total value of the insured property concerns the coverage limits or value that the policy covers, rather than the cost of that coverage. The commission earned by agents relates to the remuneration they receive for selling insurance policies, which again is separate from the idea of a premium. Understanding these distinctions helps clarify the important role that premiums play in the insurance process.