Question

What is an insurance premium?

Short answer

The insurance premium is the sum paid to the insurance firms that provide such protection in the form of insurance to such persons in exchange for protection against any risk.

Step-by-step solution

Definition of insurance.

Insurance is an agreement in which a person or a company gets insurance cover or reimbursement in the form of a coverage from an insurance company.

Explanation of solution.

Insurance is a tool that individuals and businesses use to protect themselves from the financial consequences of a single occurrence. Households and businesses will pay premiums in regular installments or payments. . Insurance firms base premiums on the likelihood of negative financial consequences occurring or not occurring.

The group of people who will incur a loss as a result of such negative financial consequences will be compensated for their insurance premium.

There are various types of insurance available on the market, such as health insurance for medical relief, car insurance to protect against accidents or theft, home insurance to protect property rights, fire insurance to protect against loss due to fire, and so on.

As a result, the premium is a regular or little amount that households or businesses must pay in order to be protected from major financial consequences.