What does the term premium refer to in insurance?

The term premium in insurance specifically refers to the invoice cost charged by the insurance company for coverage. This is the amount that a policyholder must pay, usually on a monthly or annual basis, to maintain their insurance policy. The premium is a critical component of any insurance contract, as it secures the coverage that protects against potential financial losses due to unforeseen medical expenses or other covered incidents.

Understanding the distinction between a premium and other terms such as deductible, which is the amount the policyholder must pay out-of-pocket before the insurance company begins to cover expenses, is important. Additionally, the total cost of medical services provided and the amount the insurer pays to the medical provider do not relate to the premium, as they refer to the cost of care and reimbursement processes, respectively. Knowing the role of the premium helps individuals manage their financial commitments related to insurance and make informed decisions about their coverage options.