What is an insurance premium?
An insurance premium is the amount a policyholder pays to an insurance company, typically monthly or annually, to maintain active coverage under an insurance policy.
A premium is the cost you pay to keep your insurance active. You typically pay it monthly, annually, or in installments, depending on your policy structure. The money goes to the insurance company in exchange for them agreeing to cover eligible claims if they occur.
Insurance companies calculate premiums by weighing several risk factors specific to you and your situation. For auto insurance, this includes your driving history, the type of vehicle you drive, your age, and where you live in Ontario. For home insurance, factors include the age and construction of your property, its location, security features, and claims history. For business insurance, underwriters look at the industry, number of employees, revenue, loss history, and safety practices. The riskier the profile, the higher the premium tends to be.
Premiums are distinct from deductibles, a common point of confusion. Your premium is what you pay to the insurer regularly to maintain coverage. A deductible is the amount you agree to pay out of pocket when you file a claim. You might have a $0 premium on one policy and a $500 deductible, or vice versa. These are two separate costs in the insurance relationship.