What is defined as the cost of insurance coverage paid by a policyholder?

The cost of insurance coverage that a policyholder pays is referred to as the insurance premium. This is the amount that the insured must regularly pay to maintain their insurance policy and receive coverage for potential losses. The premium can vary based on several factors, including the type of coverage, the insured's risk profile, and the insurer's underwriting guidelines.

Understanding the concept of an insurance premium is crucial because it represents the financial commitment the policyholder makes to ensure they have protection against specified risks. It is also important to distinguish this from other terms like deductible, payout, and policy limit, which refer to different aspects of the insurance policy. For instance, a deductible signifies the amount the policyholder must pay out of pocket before the insurance coverage kicks in, while a payout is the amount the insurance company agrees to pay the insured in the event of a claim. The policy limit indicates the maximum amount an insurance company will pay for a covered loss. Recognizing these distinctions helps clarify the structures of insurance policies and the responsibilities of policyholders.