What is "premium" in life insurance?

Premium in life insurance refers to the amount paid by the policyholder to maintain coverage. This payment is typically made on a regular basis, such as monthly or annually, and is essential for keeping the policy active. The premium is determined based on various factors, including the policyholder’s age, health status, the amount of coverage desired, and the type of policy being purchased.

Understanding the role of premiums is crucial, as they are the lifeblood of an insurance policy, ensuring that the insurance company can cover claims that arise. If premiums are not paid, the coverage can lapse, meaning the policyholder would no longer be eligible for the benefits promised in the policy. This makes the premium a foundational element of the contractual relationship between the insurer and the policyholder. Thus, recognizing that the premium is what allows the policy to remain active highlights its significance in life insurance.