Premium

AAA

DEFINITION of 'Premium'

1. The total cost of an option.

2. The difference between the higher price paid for a fixed-income security and the security's face amount at issue.

3. The specified amount of payment required periodically by an insurer to provide coverage under a given insurance plan for a defined period of time. The premium is paid by the insured party to the insurer, and primarily compensates the insurer for bearing the risk of a payout should the insurance agreement's coverage be required.

INVESTOPEDIA EXPLAINS 'Premium'

1. The premium of an option is basically the sum of the option's intrinsic and time value. It is important to note that volatility also affects the premium.

2. If a fixed-income security (bond) is purchased at a premium, existing interest rates are lower than the coupon rate. Investors pay a premium for an investment that will return an amount greater than existing interest rates.

3. A common example of an insurance premium comes from auto insurance. A vehicle owner can insure the value of his or her vehicle against loss resulting from accident, theft and other potential problems. The owner usually pays a fixed premium amount in exchange for the insurance company's guarantee to cover any economic losses incurred under the scope of the agreement.

RELATED TERMS
  1. At A Discount

    This specifically refers to stock that is sold for less than ...
  2. Non-Scheduled Personal Property

    Refers to the items that are automatically covered under your ...
  3. At A Premium

    The sale of an asset or item at a price significantly above the ...
  4. Premium Income

    1. In investing, income that is earned through the sale of an ...
  5. Benefit Period

    The benefit period is the length of time during which a benefit ...
  6. Insurance Proceeds

    The benefit proceeds paid out by any type of insurance policy ...
Related Articles
  1. Home & Auto

    Preparing Your Finances From Natural ...

  2. Insurance

    Can I Get Life Insurance?

  3. Home & Auto

    How An Insurance Company Determines ...

  4. Entrepreneurship

    Women And Finances: Is There A Gender ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center