What distinguishes a premium from a deductible in an insurance policy?

The correct answer highlights that a premium is the amount paid to an insurance company for coverage—essentially the cost of purchasing the policy. This payment is generally made on a regular basis (monthly, quarterly, or annually) and is mandatory to keep the insurance policy active.

On the other hand, a deductible is the amount the policyholder must pay out of pocket before the insurance coverage kicks in for a claim. It serves as a form of cost-sharing between the insurer and the insured. For example, if a policy has a deductible of $1,000, the insured must cover the first $1,000 of any loss before the insurance company pays for any additional costs.

This distinction is crucial because it affects how insurance operates and what financial responsibilities lie with the insured individual in the event of a claim. Understanding the roles of both premiums and deductibles can help individuals make informed decisions about their insurance coverage and overall financial planning.