Premium (Insurance)

The Premium is the amount you pay regularly (usually every month, but could be every year) to the insurer who will then provide you with insurance cover.

With some policies, apart from the cover, there will also be an investment aspect to the contract - in other words, you will also be saving for the future i.e. building up a 'nest egg'.

Policies for buildings, contents, life insurance and medical cover all require a regular premium. If you stop paying a premium, the chances are you will cease to be covered.

The level of premium will often vary, in the case of contents insurance some homes are more at risk to theft than others. In the case of buildings insurance, some homes are more likely to suffer from subsidence. And with life and medical insurance, some people are less healthy than others and will be asked for higher contributions.

There are some investment products offered by life assurers which require just one premium at the start of the policy. These investment or insurance bonds are funded by a single lump sum premium.

Prior to March 1984, some regular premium life insurance contracts attracted tax relief at a rate of 12.5% but this was abolished. However, qualifying policies taken out before that date still receive relief.

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Last Updated: November 2007 © Moneyextra.com

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