What Are Car Insurance Premiums? (Guide)
Learn what a car insurance premium is and how to save money on your coverage.
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There’s a lot of information to learn when shopping for car insurance. When researching providers and coverage, you may be asking yourself: what are car insurance premiums? The premium is the payment you make to your insurance company for your policy. In this guide, we’ll take an in-depth look at what car insurance premiums are, how they’re calculated, and how you can reduce them.
Our team has reviewed the best car insurance companies in the industry, so we’ll also provide recommendations to compare when shopping for coverage.
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What Is A Car Insurance Premium?
A car insurance premium is the amount you pay your car insurance company for your policy. Most insurers offer six-month or annual payment plans, but it’s not uncommon for providers to offer three-month or one-month payment plans. If you don’t pay your premium, you could have a lapse in car insurance.
Car Insurance Quote Vs. Car Insurance Premium
A car insurance quote is an estimate of what a policy may cost you. A car insurance premium is the amount you pay the car insurance company once you get a policy. Premiums can generally be paid in full up front or divided into payments.
Car insurance quotes can be different from the actual cost of your premium. Many factors affect the calculation of your quote, and information may change once you buy a policy. For instance, some insurers won’t ask for your VIN during the quote process, instead using your vehicle’s make, model, and model year to determine a quote.
If you decide to get a policy from that provider, the company may ask for your VIN to give you a more accurate rate. And if you decide to add more coverage than what you selected for your quote, your premium will likely be higher than the estimate.
Will My Car Insurance Premium Increase Over Time?
Insurance premiums typically change every six to 12 months, depending on the policy and provider. While your insurance premiums are income for your insurance provider, they also contribute to a regional insurance pool used to pay out claims. These funds are affected by the total number of claims in your region, as well as any state insurance regulations.
So your premium could go up if there are more claims being filed than usual or go down if your state legislature passes new regulatory insurance laws.
Your premium may also increase for the following reasons:
- You’ve recently filed a claim
- You have a recent traffic violation on your driving record
- You’ve changed vehicles or added a vehicle to your policy
- You’ve added a driver to your policy
- You’ve increased your coverage
In our recent survey of 1,000 car insurance customers, nearly 41% of those polled said their rates had increased without an obvious cause.
How Are Car Insurance Premiums Calculated?
Many factors affect car insurance rates. Because these factors differ from person to person, there’s no standard insurance cost that applies to every driver.
The table below explains what insurers take into account when determining your auto insurance premium:
| Factor | How It Affects the Cost of Car Insurance |
|---|---|
| Type of Car | The type of car you have, its value, and the model’s reliability all affect your rates. If your model has high theft or crash rates, like those of sports cars, the insurance company may calculate a higher premium to cover your car. This is especially relevant if you’re looking for comprehensive or collision insurance. |
| Driving Record | Your driving history plays a big part in the cost of your car insurance policy. If you have traffic violations, speeding tickets, accidents, or DUIs on your driving record, you’ll see higher rates for insurance coverage. |
| Driving Habits | If you drive often, you may have a higher premium. Some insurers offer usage-based programs that provide discounts for people who don’t drive as much. |
| Location | Each state has different insurance regulations, and most have required minimum coverage. Also, if you live in an area with high crash and theft rates, you may see increased premiums. |
| Age | Younger drivers between the ages of 16 and 25 typically pay the highest premiums, while experienced drivers receive lower rates. Premiums begin to climb again for drivers 55 and older. |
| Gender | In some states, people of one gender may get charged more than those of another. Seven states have banned using gender as a rating factor for calculating insurance rates: California Hawaii Massachusetts Michigan Montana North Carolina Pennsylvania |
| Marital Status | Single drivers often pay more for car insurance coverage than married drivers. |
| Credit History | Some states use a driver’s credit score as a rating factor, meaning having a higher credit score can lead to having a lower insurance premium. Four states have banned using credit scores as rating factors: California Hawaii Massachusetts Michigan |
| Type of Coverage | If you opt to only carry your state’s minimum required coverage, you’ll pay the lowest car insurance premium. As you add insurance coverage, your premium will increase. |
| Deductible | The deductible is the portion of costs you pay out of pocket after filing a claim. Your insurance pays the rest. Depending whose fault an accident is, you may not have to pay a deductible. Collision and comprehensive insurance policies require you to choose a deductible amount. A higher deductible typically means a lower premium. |
| Discounts | Most car insurance companies provide various discount opportunities. These may include: Bundling with homeowner’s insurance A pay-in-full discount Multi-car discounts A good student discount |
How To Pay A Car Insurance Premium
How you pay your premium will depend on the insurer. Auto insurance companies usually offer a variety of ways to pay your car insurance premium. These include:
- A check sent in the mail
- An online portal on an insurer’s website
- An insurance provider’s mobile app
- Automatic payments from your bank account
If you opt to pay online, you’ll typically either enter your credit card information for each transaction or link a bank account.
Some insurers require you to pay your premium every six or 12 months, but most offer monthly payment plans. These can be set to automatically draft from your account through the provider’s website or your bank. Some insurers offer a pay-in-full discount if you pay the annual premium all at once.
How Much Does A Car Insurance Premium Cost?
To give you an idea of what an average car insurance premium costs, our team reviewed full-coverage rate estimates from 10 of the country’s largest car insurance companies. We found that annual premiums from these insurers range from around $1,100 to $2,100 and monthly premiums range from about $90 to $180.
These averages are for married 35-year-old drivers with good credit and clean driving records. Keep in mind that car insurance premiums factor in your personal details, so your rates will differ.
| Car Insurance Company | Average Monthly Premium | Average Annual Premium |
|---|---|---|
| USAA | $88 | $1,054 |
| Nationwide | $107 | $1,281 |
| Geico | $109 | $1,308 |
| State Farm | $123 | $1,481 |
| American Family Insurance | $128 | $1,537 |
| Progressive | $134 | $1,611 |
| Travelers | $139 | $1,669 |
| Kemper | $167 | $2,009 |
| Allstate | $174 | $2,088 |
| Farmers | $178 | $2,140 |
How To Lower Your Car Insurance Premium
If you’re looking to lower your insurance premium, consider these strategies:
- Compare rates: When you shop for car insurance, compare quotes from several providers. One insurer may provide the coverage you need for significantly less than another.
- Look for discounts: Providers usually offer an array of car insurance discounts, so check on your provider’s website or contact an insurance agent to find out how to save.
- Bundle your insurance policies: Many insurers offer discounts for bundling your auto and homeowners or renters insurance together.
- Pay in full: Most insurance providers offer a discount for paying your annual premium up front.
- Drop coverage you don’t need: The less coverage you have, the lower your insurance premium will be. If you have an older vehicle or your annual premium exceeds 10% of your car’s value, having comprehensive and collision coverage might not be worth it.
- Take a driver safety course: Find out if your insurer offers a discount for completing a state-approved driver safety program. These courses are typically only six to eight hours, and completing one may help reduce your premium.
- Enroll in a usage-based program: Many major providers offer discounts for using devices or mobile apps that monitor mileage or driving habits like speeding and hard braking. But if you don’t drive safely, you could raise your rates.
Recommendations For Car Insurance
Comparing car insurance quotes is an important step when looking for the right coverage, but it’s also important to look at an insurer’s reputation. Our team researched the top insurance companies on the market. We recommend adding State Farm and Geico to your search.
State Farm: Best Overall Provider
State Farm is the country’s largest insurance provider and is known for reliable and affordable coverage. The company holds an A++ financial strength rating from AM Best as well as an A+ rating from the Better Business Bureau (BBB). State Farm is an especially good choice for young drivers because it offers discounts for good students and the completion of driver safety courses.
Read more: State Farm insurance review
Geico: Best For Discounts
Geico is one of the most reputable insurance providers on the market, and it’s the second-largest insurer in the U.S. The company holds an A+ rating from the BBB and an A++ financial strength rating from AM Best. Geico offers some of the industry’s lowest rates and a wide variety of discount opportunities, so if you’re looking for cheap car insurance, Geico may be the choice for you.
Read more: Geico insurance review
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What Are Car Insurance Premiums: FAQ
What does a premium mean for car insurance?
A car insurance premium is the amount you pay for the coverage in your auto insurance policy. These payments can be made monthly, every six months, or annually.
What does a six-month premium mean?
A six-month premium is a type of insurance in which the policyholder makes a single payment to cover their car insurance every six months. It’s an alternative to a 12-month plan or a single annual payment.
Is your car insurance premium your monthly payment?
Your car insurance premium is what you pay the insurance company to cover your vehicle. Depending on the options your insurer offers, you can pay your premium every month, every six months, or annually.
Is it cheaper to pay for car insurance in full?
Yes, it’s usually cheaper to pay for car insurance annually in full. Most car insurance companies offer a discount for paying in full since monthly payments require more processing fees.
How We Rate Insurers
Our review process aims to deliver consistent and unbiased assessments of car insurance providers. While there are multiple qualities that make a car insurance company successful, our review team focuses on those we believe are the most important for consumers:
- Cost: Cost can be difficult to compare between insurers because so many factors impact annual premiums. The cheapest insurer for one driver may not be the cheapest for another. To determine our cost score, we look at insurance rate estimates generated by Quadrant Information Services, discount opportunities, and consumer reports.
- Coverage: To determine our coverage score, we look at the number of coverage options available as well as coverage limits and deductible options. Our ratings also take into account additional services and benefits like roadside assistance.
- Reliability: It’s important that an auto insurer is able to meet its claims obligations. Companies with a strong financial strength rating from AM Best score best in this category. Established insurers with a long history of reliable service also receive positive marks.
- Service: We comb through customer reviews on sites like the Better Business Bureau (BBB) to learn about customer experiences. Insurers with a low volume of complaints score well in this area. We also consider the claims process, giving higher ratings to car insurance providers that offer easy-to-use claims apps.
*Data accurate at time of publication.
