What Is an Insurance Premium?

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The insurance industry earns more than $1 trillion every year, according to the Insurance Information Institute. Those premiums are collected by nearly 6,000 insurance companies across the United States. So, what exactly is an insurance premium? 

In short, the premium you pay is what buys you an insurance policy — and it's how insurance companies earn the money they need to cover repairs, replacements, and the other expenses that come with losses and claims filed by policyholders.

Premium costs will depend on a variety of factors, including the insurance company, the specific policy, and the policyholder. When consumers compare the potential costs of their premiums from policy to policy, it's important to measure other costs, such as deductibles. It's also essential to shop around and compare. After all, a lower premium might sound good on paper, but it could mean less coverage or a higher deductible. That's a lot to consider — so here's everything you need to know.