Premium Definition

The "Legal-Ease" Glossary
Premium

In short, this is the price of your policy for the specified policy term. You pay your insurance provider this amount in exchange for your coverage. Usually, you have the option to pay in yearly or monthly installments.

Premiums are calculated based on several factors, such as…

  • The type of policy you choose.
  • The policy limits.
  • The deductible you choose.
  • The riders you add.
  • The experience you have in your industry.
  • The kind of industry you work in.
  • The services you offer.
  • Your business location.
  • The number of employees you have.
  • The risk management protocol you already have in place.
  • How much revenue your business generates.
  • The type and value of the commercial assets you insure.
  • And more.

You can learn more about how certain policy prices are determined in the posts “What Goes into a Workers' Compensation Insurance Quote for Small Businesses?” and “What Goes into a Quote for Commercial Auto Insurance?

It’s important to pay your premiums to ensure your coverage doesn’t lapse. Your insurance provider may extend a grace period when you miss a premium payment, but it can cancel your policy if you don’t pay within that timeframe.

Lastly, you might stumble across the term “minimum earned premium.” This is essentially the amount of money the insurer may keep when you cancel your insurance policy before its expiration date.

So let’s say you have a policy with $500 annual premium that you paid in full. At the six-month mark of your policy term, you decide to cancel your coverage. If your insurance company doesn’t have a minimum earned premium, it would refund you the remaining $250 of the premium that it hadn’t yet earned. But say the company has a $300 minimum earned premium. Even if you cancelled your policy a month into the coverage, the most you could get back is $200.

Learn more in the blog post “What Is a Minimum Earned Premium?

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