Premium Income

AAA

DEFINITION of 'Premium Income'

1. In investing, income that is earned through the sale of an option. The writer of an option earns premium income; the buyer of the option pays the writer a premium in order to have the right (but not the obligation) to exercise the option at a fixed price and specified date.


2. In insurance, revenues that an insurer receives as premiums paid by its customers for insurance products. When a customer purchases an insurance product, such as a health insurance policy, the customers cost for a specified term of the policy is called the premium.

INVESTOPEDIA EXPLAINS 'Premium Income'

1. An option's original sales price is referred to as its premium; this is the price that the buyer of a put or call must pay to the seller (writer) of an options contract. Investors can profit by writing covered options contracts when the underlying stock is owned; or by writing a naked option if the underlying is not owned. If the option expires without being exercised, the option writer profits by the full premium amount.


2. An insurance company's premium income is revenue that is derived from premiums paid by customers. Premiums are paid for all types of insurance policies including health, automobile and home. A premium is the cost paid for coverage under the policy for a certain period of time. This excludes other sources of revenue such as investment income.

RELATED TERMS
  1. At A Premium

    The sale of an asset or item at a price significantly above the ...
  2. Unearned Premium

    The premium corresponding to the time period remaining on an ...
  3. Call

    1. The period of time between the opening and closing of some ...
  4. Options Contract

    A contract that allows the holder to buy or sell an underlying ...
  5. Premium

    1. The total cost of an option. 2. The difference between the ...
  6. Put

    An option contract giving the owner the right, but not the obligation, ...
Related Articles
  1. A Look At Single-Premium Life Insurance
    Home & Auto

    A Look At Single-Premium Life Insurance

  2. How An Insurance Company Determines ...
    Home & Auto

    How An Insurance Company Determines ...

  3. Trade The Covered Call - Without The ...
    Options & Futures

    Trade The Covered Call - Without The ...

  4. How is my insurance premium calculated?
    Home & Auto

    How is my insurance premium calculated?

Hot Definitions
  1. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  2. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  3. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  4. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  5. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  6. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
Trading Center