Insurance is not free. The premium is the amount the policyholder pays to the insurer in exchange for the coverage provided by the policy. It may be paid in a single sum or in installments over the policy term.

Premiums are calculated from rates applied to units of exposure, then adjusted for individual risk features, discounts, and surcharges. They must be sufficient, over a large portfolio, to pay expected claims, expenses, and a return on capital. Competition and regulation constrain how freely insurers can set them.

Failure to pay the premium when due leads to cancellation or lapse after any applicable grace period. Premium financing arrangements allow insureds to spread the cost. Transparent explanation of how the premium is derived helps customers accept rate changes when loss costs rise.

• Price paid for an insurance policy
• Calculated from rates and exposure
• Funds claims, expenses, and profit
• Nonpayment leads to loss of coverage