Insurance Premiums

Payment made by the insured in return for insurance protection. Premiums are set based on the probability of risk of loss and competitive pressures with other insurers. An insurance company's actuary will figure out the expected loss ratio on a particular class of customers, and then individual applicants will be evaluated based on whether they present higher or lower risks than the class as a whole. If a policyholder does not pay the premium, the insurance or policy may lapse. If the policy is a cash value policy, the policyowner can choose to take a paid-up insurance policy with a lower face value amount or an extended term policy.

Amounts paid to an insurance company to cover potential hazards. Most insurance premiums are tax deductible to a business, except life insurance premiums when the company is the beneficiary. Most insurance premiums are not deductible by an individual, except that medical insurance premiums may be considered an itemized medical expense.