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  • A premium is the purchase price of an insurance policy or an annuity contract. You may pay the premium as a single lump sum, in regular monthly or quarterly installments, or in some cases on a flexible schedule over the term of the policy or contract.

    When you pay over time, the premium may be fixed for the life of the policy, assuming the coverage remains the same. That's the case with many permanent life insurance policies.

    With other types of coverage, the premium changes as you grow older or as costs for the issuing company increase.

    Used in another sense, the term premium refers to the amount above face value that you pay to buy, or you receive from selling, an investment. For example, a corporate bond with a par value of $1,000 with a market price of $1,050 is selling at a $50 premium.

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