Premium
What you pay for insurance — the regular cost of transferring a risk to someone else.
The regular payment — monthly or annual — that keeps an insurance policy active.
What you are buying is not a product but a transfer. A risk you could not absorb becomes a risk somebody larger absorbs, and the premium is the price of moving it.
Which explains what insurance is actually for. It is worth buying against events that would be catastrophic and unaffordable: the house burning down, an illness that stops you earning, a liability claim. It is usually poor value against events that would merely be annoying — the extended warranty on a phone, insurance on a modest appliance. Those you can self-insure by keeping cash, and doing so avoids paying someone else’s margin.
The other lever is the deductible. A higher deductible means a lower premium, because you are keeping more of the small risk yourself. That is often a good trade once you have a buffer, and a bad one before you do.
Review premiums annually. They rise quietly on renewal, and loyalty is frequently priced as a penalty rather than a discount.
Words on this page
- Risk — The chance that an outcome is permanently worse than you needed it to be.
- Deductible — The first slice of an insured loss you pay yourself before cover begins.
- Buffer — A small amount of cash held back so that an ordinary bad week does not create new debt.
Related terms
Covered properly in Learn.
This term appears in the glossary of The Quiet Fortune, Volume II.