Definition of Insurance Premiums (Simple and Illustrated)

English Vocabulary Lesson

This lesson explains in simple words the definition of insurance premiums. We will also look and examples, a story dialogue showing how it can be used in everyday conversations, and a short quiz to test your understanding.

Definition of Insurance Premiums

Lesson Table of Contents

1. What Is an Insurance Premium?

What Is an Insurance Premium?

First, let's look at insurance. Insurance is an agreement between you and a company. You pay a certain amount of money regularly (for example every month), and the company (called an insurance company) agrees to pay a larger amount of money if something specific happens (for example, an injury, illness, accident, or death).
insurance company

An insurance premium is an amount of money that you pay regularly to get protection (a sum of money) if something bad happens. You and the insurance company agree on how much your premiums will be. You also agree on specific cases in which the insurance company will pay out money. (To pay out means to give a large sum of money.)
insurance premium

You then sign a contract with the insurance company. This contract is called an insurance policy. It explains the types of risks (things that can go wrong) that you are insured (protected) against, and the amount of premium you have to pay periodically. (Periodically means in regular intervals, such as every month or every year.)

The person who sells you insurance is called an insurance agent. The meaning of agent is a person that organizes a deal between others. The insurance agent is organizing a deal (an insurance contract) between you and the insurance company.
insurance agent

How Do Insurance Companies Decide How Much You Pay in Premiums?

The insurance company will decide how much your premiums will be based on different factors.

For example:
  • How old you are
  • Your health
  • How much money you want the insurance company to pay out if something bad happens
  • Your driving history (for car insurance)
  • The type of activity you are doing (for example, if you're playing a sport)
The more risk that you present, the more money you will have to pay (the premiums will be higher).
insurance risks

Let's look at an example. Bob meets with an insurance agent. The agent asks Bob some questions about his age, health, and lifestyle. He tells Bob that he can get life insurance for a monthly premium of $10. In return, Bob's family would receive $100,000 in case Bob passes away (dies). Bob agrees and signs a policy with the insurance company. From then on, Bob pays $10 each month as an insurance premium. If Bob stops paying his premiums, his insurance policy will be canceled (ended).
Bob and his insurance agent

Examples of How to Use Insurance Premiums in a Sentence

  • I had to pay an insurance premium of $200 every month for my car.
  • We have to be sure that we can afford to pay our insurance premiums this year.
  • She signed an insurance policy and started paying the monthly premiums.
  • How can I be sure that my insurance premiums will remain low?
  • Is there a way to lower my premiums?
Examples of How to Use Insurance Premiums in a Sentence

An Example Dialogue: Using "Insurance Premiums" in Everyday Conversations

Here is an example conversation between two people about insurance premiums.
Using "Insurance Premiums" in Everyday Conversations

Karen: I can't believe my car insurance premium went up again this year.

Jared: Oh, yeah? Mine too. $200 more per year!

Karen: I know! Insurance companies make a lot of money from premiums.

Jared: It's crazy. But there's not much we can do, I guess.

Karen: No, I suppose not. We just have to keep paying the premiums if we want to be insured...
Jared: You know, maybe we can call our insurance agents and see if we can get a better deal.

Karen: That's a good idea. We should call and see if there are any discounts or special offers available.

Jared: Maybe even switch to a different insurance company if the premiums are too expensive.

Karen: But switching companies could be a hassle. Let's call our agents first and see what they can do.

Jared: Sounds like a plan!
Sounds like a plan!

(A hassle is something that is inconvenient and annoying.)

Disclaimer: This English vocabulary lesson is for informational and educational purposes only. It is not intended to be a substitute for professional advice.

Vocabulary Quiz: Test Your Understanding

Vocabulary Quiz

1. What is the meaning of "insurance"?
A) Protection against loss or damage
B) A big sum of money
C) Regular payments you must pay

2. What is the meaning of "insurance company"?
A) A person who sells insurance
B) An organization that sells and provides insurance
C) An organization that invests other people's money to help them financially

3. What is the meaning of "insurance premium"?
A) A large sum of money
B) A contract between you and the insurance company
C) An amount of money paid regularly to an insurance company

4. What is the meaning of "agent"?
A) A person who buys insurance
B) A person who sells vacations
C) A person who organizes deals between others

5. What is the meaning of "insurance agent"?
A) A person who sells insurance
B) A person who provides insurance
C) A person who pays the premiums  

6. What is the meaning of "insurance policy"?
A) Regular payments you must pay
B) A signed agreement between an insurance company and you
C) A large sum of money

7. What is the meaning of "to pay out"?
A) To make a big payment
B) To receive money from an insurance policy
C) To provide insurance protection

8. What is the meaning of "periodically"?
A) Regularly
B) Once a month
C) Every year

9. What is the meaning of "hassle"?
A) An annoying inconvenience
B) A big problem
C) A large sum of money

10. Why do people get insurance?
A) To protect against loss or damage
B) To save money
C) To make a profit


1. A | 2. B | 3. C | 4. A | 5. A | 6. B | 7. B | 8. A | 9. A | 10. A

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