Premium

Definition

A premium is the amount paid for an insurance policy, reflecting the cost of the risk covered. It can also refer to the excess amount paid over a standard rate or value in various financial contexts.

5 Must Know Facts For Your Next Test

1. 1. Premiums are influenced by factors such as risk level, coverage amount, and policy term.
2. 2. In finance, a currency premium can occur when one currency is expected to appreciate relative to another.
3. 3. Insurance premiums are typically calculated using actuarial methods that assess the likelihood of claims.
4. 4. A higher premium often indicates higher perceived risk or greater protection offered by the policy.
5. 5. Premiums can be paid in various frequencies, such as monthly, quarterly, or annually.

Review Questions

• 1. What factors influence the calculation of an insurance premium?
• 2. How does a currency premium relate to exchange rates?
• 3. Why might an insurer charge a higher premium for a particular policy?

Related terms

Risk Management: The process of identifying, assessing, and controlling threats to an organization's capital and earnings

Exchange Rate: The value of one currency for the purpose of conversion to another

Actuarial Science: The discipline that applies mathematical and statistical methods to assess risk in insurance and finance