What is a premium, when is the premium due, how is a premium calculated, how do I pay the premium, and what happens if I stop paying the premium?

A premium is a periodic policy payment, also known as an insurance rate, that is paid to keep coverage to an insured party from an insurance policy active. Periodic means the policy payment can be selected to be paid monthly, quarterly, semiannually, or annually. A premium can be fixed or variable depending on the features of the insurance policy. The premium is normally level, meaning it never changes once set. Normally, the less amount of times an premium is paid per year, the higher the premium. The premium is allocated to the insurance company for the cost of insurance, including an annual policy fee, if applicable, and the savings account component of an insurance policy, if a traditional life insurance policy. If an insured dies and the premium has continually been paid on time, the designated beneficiary will receive the death benefit.

A premium is calculated based on the risk classification of the proposed insured determined by the insurance company. The insurance company uses the personal and physical characteristics of a person as well as their health characteristics from the results of a paramedical examination or health questionnaire during underwriting to set an insurance rate.

In general, age, gender, and health are the main contributing factors in determining a premium. An older male with poor health will pay the highest premium. Females are more likely to live longer than men, younger people are more likely to live longer than older people, and people with excellent health are more likely to live longer than people with poor health.

Most insurance companies accept three types of payment methods to pay the premium. Those payment methods include a bank draft, credit card, or paper check. However, some carriers and states have different payment method requirements. A bank draft is an electronic direct debit from a bank account using an account number and routing number. A credit card can normally come from the four main payment processors: Visa, MasterCard, Discover, and American Express. A paper check is old fashioned, and may not be available, but is essentially a paper version of a bank draft.

If you miss the premium due date, your insurance company will give you a grace period to pay the missed payment. If the grace period is missed, the insurance policy will lapse. Lapse is the termination of an insurance policy due to a missed premium. The insurance company will notify the policyowner of the termination timely after a policy lapses. However, in the case of traditional life insurance, there is a security measure in place to prevent the event of a lapsed insurance policy. The available cash value can be automatically applied to pay a missed premium in order to keep the insurance policy active. If premiums are continually missed, the cash value can be used to pay the premium until the cash value balance is exhausted. If the policyowner continues to not pay the premium after the cash value balance is exhausted , the policy will lapse and the policyowner will be notified.

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