Insurance premium

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An insurance premium is the amount of money you pay each year for a certain amount of insurance coverage. For example, a young healthy person may pay a premium of $400 per year for $500,000 of life insurance. You may pay $800 per year for comprehensive insurance on your car. Your employer may pay $600 per month for your health insurance.

Premiums represent the insurance company's calculation of the risk they are insuring against. If your car insurance is $800 per year, then the insurance company figures that on average 10 individuals like you are not going to have more than $8,000 in claims in a year. The difference between what they collect and what they pay out is the insurance company's profit. Their incentive to keep the prices high to make a profit is offset by their incentive to keep their prices low enough that you won't go to another insurance company.