Insurance Investments

Q&A: What is a premium?

The word “premium” has multiple meanings in finance, depending on the context:

Insurance
In the context of insurance, a premium is a payment or fee (usually monthly) in exchange for the insurance coverage.

Options
In the context of options, the premium is the total cost of buying an option.

Fixed-income
If a fixed-income security (like a bond) is bought at a price above what it was issued at, it is said to have been purchased “at a premium”.

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