Jan pays $70 each month for her auto insurance policy. This regular payment is called a:

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The short answer is a premium.

The long answer is that an insurance premium is the amount of money someone pays for an insurance policy. These premiums could be used to cover car, homeowners, health, dental or life insurance just to name few.

The initial premium you pay is based on many factors such as how old you are, where you live, have you filed claims in the past and sometimes your credit score.  Your premium generally remains the same during the course of coverage but your insurer may raise your premium if you make any claims during the previous coverage period. A claim is an attempt to get a payout from the company. A high claim payout may raise your premiums the following terms.

People often ask how insurance companies make money since insurance policies have a payout much larger than the premium and the answer is that insurance companies invest that premium in various finical instruments.  They also try to balance their risk so not many claims could be filed at the same time.

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