How insurance premiums work
An insurer sets the premium based on the policy's coverage, risk assessment, and applicable rating rules. The policyholder pays according to the terms of the contract. Payments may be monthly, semiannual, or annual, depending on the product.
A premium billed is not always the same as cash received. A premium earned is the portion attributable to coverage already provided. Payment failure may lead to a servicing or policy-status review, depending on the product and applicable law.
Example
A policy costs $1,200 for a year and allows 12 payments of $100. The $100 is an installment of premium, not necessarily the total annual premium. A missed installment triggers a payment exception, not an automatic conclusion about coverage status.
Why finance teams track it
Insurers must distinguish premiums invoiced, received, applied, and earned. Connected billing and reconciliation systems help prevent repeated outreach for amounts already paid.
Learn more in Insurance Receivables: The 2027 CFO Revenue Operations Guide and Insurance Payment Recovery Workflows.
Reference: NAIC, How Does Insurance Work?