Health Insurance 101: What Is a Premium?

Think of a premium like a gym membership fee — but for your health insurance.

Loading the player...

Understanding what a premium is and how it affects your overall costs is essential to choosing a health insurance plan. No matter how much or how little you visit the doctor, you’re going to pay premiums every month. That doesn’t necessarily mean you should pick the plan with the lowest premium. It all depends on what you or your family need to get the right coverage for you.

What Is a Premium for Health Insurance?

A premium is the monthly fee that you pay for your health insurance plan. In some cases, it may be quarterly or annually, but it’s usually monthly. You pay your premium regularly, even if you haven’t visited the doctor that month.

Think of a premium like a gym membership fee. Once you sign up, you pay that fee every month—even if you have a busy month and never visit the gym. Your membership gives you access to perks, such as a sauna or some yoga classes. However, you may still have to pay for additional services, such as a one-on-one session with a trainer.

A health insurance premium is similar. With your monthly fee, you may get access to certain “perks” like free annual dental cleanings or wellness checkups. Still, you’ll need to pay for additional services, such as the cost of an urgent care visit or a copay for a therapy session.

How Payment Works

If you get insurance through your employer, your premium will likely come directly out of your paycheck. This may make your paychecks a tad smaller, but you’ll never really have to think about paying your monthly insurance fees.

If you don’t get insurance through your employer (such as if you have a plan through the Health Insurance Marketplace), you will likely need to manually pay your premium each month, similar to how you pay other bills.

Choosing a Plan with the Right Monthly Fees

You might think that the best option is to choose the plan with the lowest monthly fee. However, this isn’t always the case. Health insurance plans that have a lower premium tend to have higher deductibles and copays. A high deductible means you may have to pay more of your own money for healthcare costs before your insurance kicks in. High copays means you’ll have a higher set fee for certain services, like visiting your primary care doctor or a specialist.

Choosing the right plan comes down to how you expect to use your health insurance. People who live with a chronic illness, for example, might anticipate many doctor visits, prescription medicines, and even surgeries throughout the policy year. For them, it may be worthwhile to choose a plan with a high premium. That way, they may have a low deductible, copay, and coinsurance, which will help them afford their health care throughout the year.

On the other hand, a low-premium plan might work fine for people who are generally healthy and don’t anticipate many doctor appointments throughout the year. They may only need to use basic services, such as an annual checkup, which may even be free under their plan.

Got more questions about premiums or how to pick the right plan for you? Talk to a representative from your health insurance company who can break it down and give you personalized advice based on you and your family’s needs.