Answer :
Final answer:
The premium is always a cost when buying insurance, as it is the amount paid regularly to keep your policy active. Other costs like deductibles and payouts relate to specific claims rather than ongoing costs. Therefore, understanding these different terms is crucial for anyone considering insurance.
Explanation:
Understanding Insurance Costs
When it comes to buying insurance, there are various costs that a policyholder may encounter. The most significant of these costs is the premium.
What is a Premium?
The premium is the amount you pay to an insurance company for coverage. This payment can be made monthly, quarterly, or annually. It is important to note that the premium is a fixed cost you will incur for as long as you maintain the policy, regardless of whether you make claims.
Other Costs
- Deductible: This is the amount you pay out of pocket before the insurance coverage kicks in. For example, if you have a $500 deductible, you must pay this amount before the insurance starts paying for a claim.
- Payout: This refers to the amount paid by the insurance company to settle a claim. While important, this is not a cost you are responsible for when purchasing insurance.
In summary, the premium is always a cost when buying insurance as it must be paid to keep the policy active, whereas deductibles and payouts are related to specific claims and not a direct cost of maintaining the policy.
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