South Carolina Life and Health Practice Exam

In insurance terminology, what does the term "premium" refer to?

1. The amount of coverage provided

2. The amount paid for the policy

3. The insurer's profit margin

4. The deductible amount

The correct answer is: The amount paid for the policy

In insurance terminology, the term "premium" specifically refers to the amount paid for the policy. This payment can be made on various schedules – monthly, quarterly, semi-annually, or annually – and is the cost that policyholders pay to acquire and maintain insurance coverage. The premium is essentially the insurer's fee for assuming the risk associated with providing coverage to the policyholder. This understanding is essential because the premium amount can vary based on several factors, including the type of insurance, the risks involved, the coverage limits, and the insured's individual characteristics. It is integral to the contractual relationship between the insurer and the insured, as paying the premium is typically a requirement to keep the policy in force and ensure that the coverage remains available when needed.