Premium
Definition
The recurring payment you make to an insurance company to maintain active coverage. Premiums can be paid monthly, quarterly, semi-annually, or annually.
An insurance premium is the cost of your coverage — the amount you pay to keep your policy active. If you stop paying premiums, your coverage lapses and you lose protection.
Premium amounts are determined by risk factors specific to each insurance type. Auto premiums consider your driving record, age, vehicle type, and location. Health premiums factor in your age, tobacco use, and plan tier. Life insurance premiums depend heavily on age, health status, and coverage amount.
Understanding premiums in the context of your overall budget is critical. Insurance costs are a fixed recurring expense that should be tracked alongside subscriptions and bills. For a typical household, insurance premiums (health, auto, home, life) can total $1,000–$2,000+ per month — a significant budget line item.
Ways to lower premiums include: bundling policies with one insurer, raising deductibles, maintaining good credit, comparing quotes annually, and asking about available discounts (safe driver, home security, non-smoker). Even small premium reductions compound significantly over time.
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
Why do insurance premiums increase every year?
Premiums increase due to inflation in costs (medical costs, car repair costs), changes in your risk profile (aging), increased claim frequency in your area, and broader market conditions. Shopping around annually is the best way to fight premium creep.
Is it better to pay premiums monthly or annually?
Annual payment is usually cheaper — insurers often charge a 5-10% surcharge for monthly billing to cover administrative costs and payment risk. If you can budget for the lump sum, annual payment saves money.