What is Insurance Premium

Premium is a payment or a consideration, may be kind, paid to the insurer by the insured for the risk undertaken by the former. Usually, the premium is paid in the form of cash. The Premium is fixed by the insurer. The insurer takes into account the contributions he would receive and the average losses that could possibly occur while coming to an estimation while fixing the premium. The insurer takes into account his profits too into the account apart from contributions and other losses while fixing the premium to be paid by the insured.

Here is the simple example to explain or simplify the process or fixation of the premium by the insurer which would be paid by the insured to enter into contract of insurance. Imagine, 10000 people purchased cars. Of those owners, 8000 people insured their cars. The insurance company has past experience, every year 2 cars damages in accidents. Now let us assume, each car cost Rs. 200000. If in a year 2 cars are damaged, the average loss would be Rs. 400000. The insurer will now fixes up the premium of Rs. 100 per car. In this regard, the insurer receives Rs. 800000 together in the form of premium. Out of the premium received, he will pay the insured to make his loss good. And, the remaining amount would be adjusted towards extra expenses or other extra risk of the insurer. The premium in the insurance policy of marine is also fixed somewhat similarly. However, the premium in life insurance is fixed on the average rate of mortality. The duty of the insurer in policy issuing and the duty of the insured in paying the premium are all concurrent conditions or may be otherwise. 

The premium that is fixed by the insurer and shall be paid by the insured would be monthly or quarterly or half yearly or once in a year. The policy lapses is the insured doesn’t pay the premium when it falls due.

Return of Premiums

When the premium is returnable

When consideration for the premium failed, the subject matter doesn’t exist anymore premium is returnable. In case of Marine insurance, if the vessel already reached safely before the contract is made.

When the policy is ab initio void and there is no fraud or irregularity from insured premium is returnable. 

 When the insured insures on a policy which is un-valued and it happened genuinely premium is returnable.

When the insured through double insurance has over insured and this happened genuinely premium is returnable.

When premium is not returnable

If even for a very short period, the risk is run, the premium that was paid is not returnable.

If the insurance was taken and is induced by fraud the insurance can be avoided by the insurer and the premium is not returnable. 


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