Alabama Insurance Adjuster Practice Exam

What is the fee paid by the insured in exchange for an insurance policy called?

1. Premium

2. Deductible

3. Co-payment

4. Surplus

The correct answer is: Premium

The fee paid by the insured in exchange for an insurance policy is called a premium. This is a fundamental concept in insurance, as the premium represents the cost of transferring risk from the insured to the insurance company. When a policyholder pays the premium, they are essentially purchasing coverage for potential future claims. The amount of the premium can vary depending on factors such as the type of insurance, the coverage amount, the insured's risk profile, and market conditions. Understanding premiums is crucial for policyholders, as they need to budget for these costs while being aware of the coverage benefits provided in return. The premium is typically paid on a regular basis, such as monthly or annually, and is key to maintaining an active insurance policy. The other terms mentioned—deductible, co-payment, and surplus—refer to different aspects of insurance. A deductible is the amount the insured must pay out-of-pocket before the insurance coverage kicks in. A co-payment is a fixed amount the insured pays for specific services, often seen in health insurance plans. Surplus generally pertains to the excess of assets over liabilities in the insurance company’s financial statements, rather than a payment made by the insured.