Which statement best distinguishes a premium from a deductible?

• A. Premium is paid to obtain insurance; deductible is paid after a loss to begin insurer payments.
• B. Premium is paid after a loss; deductible is paid upfront.
• C. Premium reduces the deductible.
• D. Premium and deductible are the same concept.

Answer: (A)

Premium is the price you pay to obtain and keep insurance, paid regularly to maintain the policy. A deductible is the amount you pay out of pocket after a loss before the insurer starts paying, with the insurer covering the rest up to the policy limits. This distinction is why the statement is best: it accurately describes both the timing (upfront, ongoing payments vs after a loss) and the roles (funding the policy vs sharing the cost of a claim).

For example, if your premium is $100 a month and your deductible is $1,000, you pay the $100 monthly to keep coverage. If you incur a $3,000 covered loss, you first pay the $1,000 deductible, and the insurer pays $2,000 (subject to the policy terms). The other options mix up when payments happen or conflate the two concepts, or claim they are the same.