Texas Adjuster Practice Test

What is the term for the amount an insured pays to maintain an insurance policy?

1. Deductible

2. Premium

3. Policy limit

4. Co-payment

The correct answer is: Premium

The term for the amount an insured pays to maintain an insurance policy is premium. The premium is a recurring payment, often made on a monthly, quarterly, or annual basis, that policyholders are required to pay in exchange for the coverage provided by the insurance policy. This payment secures the right to receive benefits under the terms outlined in the policy and typically reflects the level of coverage, the type of insurance, and the insured’s risk profile. Understanding premiums is essential in insurance, as they can vary widely based on several factors such as the insured's age, health, location, and the type of coverage being purchased. It’s also essential to distinguish this term from others related to insurance. For instance, a deductible refers to the amount the insured must pay out of pocket before the insurance company starts to pay on a claim, and a co-payment is a fixed fee that insured individuals must pay for specific services at the time of care. Policy limits indicate the maximum amount an insurance company will pay for a covered loss under the policy.