We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is Premium Income?

By Ken Black
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Premium income generally refers to the money an insurance company receives by charging premiums to clients. This money is not all considered profit because claims must also be paid out of this money, as well as administrative expenses. Nevertheless, it is one of the primary sources of income for many insurance companies, along with investment income. The premiums are generally regulated by a governing body, and therefore cannot generally be excessive or outside of a certain range for the industry and the protections offered.

Insurance companies generally count premium income at the the end of the year because of changes that could be made during the course of the year by a policyholder. For example, if a client prepays for a policy, then cancels that policy, the unused portion of the premium is generally referred to as unearned premium. That portion is often refunded to the person who paid the premium, minus any administrative charges imposed.

As may be expected, premium income is the major source of income for an insurance company. Its sole reason for existence is to charge premiums and cover losses put in as claims. Therefore, the income is vital to the overall operations of the insurance business. While other sources of income are important, they are generally based on the money received from premium collections.

As an example of how income from premiums affects other revenue streams, look at investment income. Without receiving premium income, there is no other money to invest. Therefore, everything starts with the collection of the premiums. In addition, the income from those premiums must meet all expenses or the company could be facing a loss, especially if other sources of income do not offset the expenses.

In order to determine what the premium income may be, or should be, for a given year, the underwriting department of an insurance company runs projections. Those projections, because of the law of large numbers, are more accurate as the company adds more policyholders. In other words, the larger the number of people in the pool, the more predictable the losses become. The amount is calculated and premiums are assessed.

Generally, premium income is based on yearly figures, although some companies may set up easier, monthly payment plans for clients. Overall, the goal is to make sure that, at the end of the year, the income from premiums, and other sources, meets or exceeds the expenses incurred. This is determined by looking at end-of-the-year balance sheets.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Discussion Comments
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.