- Insurance starts with a contract called a policy. It only covers the specific events listed in the policy, and some policies list exclusions.
- The premium is the regular fee you pay to keep coverage active, whether or not you file a claim.
- The deductible is a set amount of a claim you pay yourself before the insurer pays its share.
- Premiums are based on individual risk. More risk and more coverage generally mean a higher premium, according to the NAIC.
The policy and what it covers
The National Association of Insurance Commissioners (NAIC) explains that insurance starts with a contract called a policy. The policy covers only the specific events it lists, and some policies also list exclusions. If you are unsure whether something is covered, the NAIC says you can ask your insurer or your state Department of Insurance.
The premium
You pay the insurer a regular fee to keep your coverage active, whether or not you file a claim. The NAIC says premiums may be due weekly, monthly, twice a year or annually. Premiums are based on individual risk, called risk-based pricing. Factors include age for life insurance and local crime rates for homeowners insurance, and more risk and more coverage generally mean a higher premium.
The deductible
When you use your insurance, you typically pay a set amount of the claim yourself before the insurer pays its share. That amount is the deductible. The NAIC glossary terms that follow it are useful to know:
| Term | Meaning |
|---|---|
| Claim | A request asking your insurer to pay its share of the bill for a covered event or service. |
| Coverage | What the policy protects. |
| Copayment | A fixed amount paid for services, usually medical, before the insurer pays its share. |
| Underwriting | The insurer’s assessment of risk that determines whether to issue a policy, how much to charge and how much coverage you get. |
| Prior authorization | Insurer staff decide whether a health care service or drug will be covered. |
A worked example of a deductible
This is our own arithmetic. It ignores any other policy terms, which can change the result.
| $500 deductible | $1,000 deductible | |
|---|---|---|
| You pay first | $500 | $1,000 |
| Insurer pays its share | $1,500 | $1,000 |
A higher deductible means you pay more when you file a claim. Whatever deductible your policy lists, make sure you could pay it on short notice, because the insurer pays its share only after you pay yours.
Homeowner’s insurance also appears on a mortgage Loan Estimate; see how to read a Loan Estimate.
How a claim works
For health insurance, the provider usually submits the claim. For auto, homeowners and renters insurance, you usually submit it yourself, with documentation such as photos, reports and receipts. The insurer reviews the claim and pays its share if the policy covers the event.
Frequently asked questions
What is an insurance premium?
The NAIC describes it as the regular fee you pay the insurer to keep coverage active, whether or not you file a claim. It may be due weekly, monthly, twice a year or annually.
What is a deductible?
It is a set amount of a claim that you typically pay yourself before the insurer pays its share, according to the NAIC.
Who files the claim?
For health insurance the provider usually submits it. For auto, homeowners and renters insurance you usually submit it yourself with documentation such as photos, reports and receipts.
Does insurance cover everything?
No. The NAIC says insurance only covers the specific events listed in your policy, and some policies list exclusions. Ask your insurer or state Department of Insurance if you are unsure.
What determines my premium?
The NAIC says premiums are based on individual risk, with factors such as age for life insurance and local crime rates for homeowners insurance. More risk and more coverage generally mean a higher premium.
Sources
Each source was opened and read on October 26, 2026. See how we verify.