Define: Cost of Insurance
Cost of Insurance refers to the periodic charge a policyholder or contracting party must pay to keep insurance coverage active, calculated from factors such as risk level, coverage amount, duration, and insured value. In a contract, this term defines how premiums are determined, allocated between parties, or passed through as reimbursable expenses.
Legal accuracy standard set & glossary spot-checked by Imad Mohammed Nazar , Skadden-trained M&A lawyer, Legal Engineer at GenieAI
What Cost of Insurance Means in a Contract
Cost of Insurance is the contractual term describing the recurring amount a party must pay to obtain or maintain insurance coverage required under an agreement. It typically appears where one party is obligated to procure and pay for a policy, or where the expense of insurance is shared, reimbursed, or passed through to another party. The term gives contracting parties a shared vocabulary for identifying which charges count as insurance related costs, distinguishing them from unrelated fees such as administrative charges or taxes.
In practice, the clause clarifies not only what must be insured but who bears the financial burden of doing so. This matters because insurance obligations often span the life of a contract, and the cost associated with them can fluctuate due to claims history, market conditions, or changes in coverage scope. A precise definition prevents disputes about whether a particular charge falls within the defined cost.
The concept is common across many contract types, including those found in an Relevant Circumstances
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