Function

• Life insurance premiums are payments made to a life insurance company to keep a policy in force, or valid. A life insurance policy is a contract wherein the owner agrees to make premium payments into the policy and the insurer agrees to provide the benefits associated with that policy. Common benefits include cash value for permanent insurance policies, the ability to make withdrawals, loans and partial surrenders, and a death benefit usually equal to the face amount of the policy. When premiums are not paid, the policy will lapse and eventually terminate.
  
  

Purpose

• Premiums keep a life insurance contract in force. For permanent policies, premiums purchase cash value that grows in the policy over time. In non-cash value policies, such as term life insurance, premiums purchase a death benefit, often for pennies on the dollar, that is paid to named beneficiaries upon the owner's death.
  
  

Types

• Premiums vary in amount and duration. The most common premium payment occurs monthly, but quarterly, semi-annual, annual and even single premiums are available. A single premium insurance policy is one that is completely paid for in one payment. The purchaser immediately gains cash value that she can take loans from or withdrawal, with penalties, if necessary.
  
  

Amount and Duration

• Premiums can be level, remaining the same over the life of the policy, such as with a 20-year term life insurance policy. Or, premiums can vary, such as with a universal life insurance policy. Level premiums are guaranteed not to change, making them easier to factor into a budget. Flexible premiums give the payer freedom to pay more one month and less another, as long as the minimum premium amount is paid to keep the policy in force.
  
  

Changing a Premium

• Insurers will commonly allow the purchaser to change the frequency of premium payments, and amount paid, as long as minimum premium requirements are met to keep the policy in force.