Premium Law and Legal Definition
In legal terms, a premium usually refers to a payment paid by the insured to the insurer for providing insurance policy. Insurance premiums may be made either in a lump sum or by installments. In the insurance industry, each individual pays a premium into a pool, from which losses are paid out. The premium is not returnable if a loss is not suffered, in that case the payment is for "peace of mind". Thus, when a loss is suffered, the loss is spread to the people contributing to the pool. To ensure these pools are properly managed and adequately funded, the government and the courts heavily regulate the insurance industry. An earned premium is the portion of a premium that represents coverage already provided uder a policy period already passed, whereas an unearned premium is the portion of a premium representing the unexpired part of the policy period.
A premium may also refer to an extra payment for an act, option or priority. In corporate transactions, a premium may be paid on top of the market value of a share of a stock in an attempt to prevent a hostile takeover. In another example, The Immigration and Naturalization Service (INS) offers expedited application processing for an extra fee.