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- Your car insurance premium is the money you pay to maintain car insurance coverage.
- Car insurance companies quote premiums using personal, car-related, and geographical factors.
- You can lower your premium by driving safely, looking for bundling discounts, or choosing lighter coverage.
In the world of car insurance, the cost of your policy is called a “premium,” and it can vary depending on several key factors.
If you try to buy car insurance without understanding premiums, you’re likely to overpay. As a consumer, your goal is to get the best auto insurance, which means paying the lowest possible premium for the coverage you need.
Understanding Car Insurance Premiums
Definition of a Car Insurance Premium
A car insurance premium is the price you pay for car insurance coverage. Depending on the insurance provider, you could pay the premium monthly, biannually, or annually.
Car insurance providers will offer you a personalized premium when you request a quote. The insurance company determines your premium by calculating the probability that you’ll file a claim. So, there’s no single price for all drivers.
How Car Insurance Premiums Are Calculated
Car insurance companies calculate premiums according to risk. That means they determine how likely it is that you’ll use your insurance to pay for liability or repairs.
These calculations are necessary to maintain the business model of an insurance company. A driver with a higher risk is likely to damage their car more frequently, which means the insurance company will have to pay more for repairs. To make up for this increased risk, the company charges higher premiums.
Factors That Influence Your Car Insurance Premium
When calculating your car insurance premium, an insurance provider will consider a variety of factors. They’re generally divided between personal factors and factors related to your vehicle.
While any of these factors can be applied to your premium calculation, some states don’t allow all of these factors to be considered. For example, Georgia doesn’t allow car insurance providers to factor your employment status, occupation, or education into their premium calculations.
Coverage Choices and Their Impact on Car Insurance Premiums
You can impact your premium by making certain choices about your car insurance coverage.
For example, you can determine:
Geographic Location and Its Effect on Car Insurance Premiums
Car insurance providers consider your state and even your ZIP code when calculating premiums. Their goal is to determine whether you live in a region where auto damage is more likely. You’ll generally pay more if you live in a high-traffic urban area or a region prone to natural disasters.
How to Lower Your Car Insurance Premium
While certain factors used to calculate premiums are beyond your control, there are plenty of ways to lower costs. Car insurance expert Michael Silverman, Founder and President of Silver Lining Insurance Agency, recommends “have a good driving record, have higher deductibles, take defensive driving classes, and do not have any accidents.” With the right approach, you can avoid overpaying for car insurance.
Tips for Reducing Your Car Insurance Premium
- Compare quotes from different providers. Not every company will charge the same amount.
- Take full advantage of discounts. Providers often offer lower premiums, including discounts for good students, safe drivers, and people who pay the full policy cost upfront.
- Only pay for the coverage you need. Before buying insurance, determine the best policy for your situation.
- Maintain a clean driving record. By avoiding accidents and traffic tickets, you’ll put yourself in the position to pay lower premiums.
Discounts and Savings Opportunities
Many car insurance providers offer discounts for things like:
- Bundling your car insurance with homeowner’s insurance or renters insurance
- Enrolling in paperless billing
- Setting up autopay
- Having good grades as a student
- Maintaining a clean driving record
- Driving a car that’s considered safe
- Paying the full cost of your policy upfront
According to Cassie Sheets, a Data Journalist at the insurance marketplace Insurify, “if drivers let insurers track driving behaviors using a device or smartphone app they can earn discounts.” Insurers often post information about these discounts on their websites. You can also call the company to ask about available discounts.
Comparing Quotes from Different Car Insurance Providers
Each insurance provider has its own system for calculating premiums, which means you could get a better offer from one company than another. That’s why shopping around before buying car insurance is so important. Even if you already have insurance, getting quotes from other providers every year is helpful. This allows you to take advantage of the opportunity to pay lower premiums.
Most insurance providers have an online quoting system where you enter basic information to learn how much you would pay for coverage. However, make sure that when comparing auto insurance quotes, you request the same coverage from each company. That will allow you to determine which provider is truly giving you the best deal.
The Importance of Understanding Your Car Insurance Premium
As a driver, your car insurance premium is one of the largest ongoing expenses in your life. Understanding the factors that contribute to your premium will help you limit costs and avoid paying for coverage you don’t need.
How Your Car Insurance Premium Relates to Coverage Levels
Your car insurance premium largely depends on the coverage that’s included in your policy. Providers offer several types of coverage, including:
- Liability coverage — covers damage and injuries to other drivers if you cause an accident.
- Comprehensive coverage — covers damage caused by non-collision incidents.
- Collision coverage — covers damage caused by a collision with a building, an object, or another vehicle.
- Full-glass coverage — only covers repairs that are glass-related.
- Roadside assistance — provides assistance for roadside issues like flat tires, dead batteries, or empty gas tanks.
While liability coverage is generally required by law (varies by state), the remaining types of coverage are usually optional. It’s up to you to decide what types of coverage to include.
Reviewing and Adjusting Your Car Insurance Premium Over Time
Reviewing your car insurance premium at least once a year and considering whether it’s time to adjust is important. You might be able to get a lower premium than you’re currently paying, especially if you’ve maintained a clean driving record and haven’t filed any claims.
You should also reassess your car insurance coverage whenever you experience a major life event, including marriage, the birth of a child, moving to another state, or having a child become a student driver. These changes could require you to adjust your coverage and may affect your premium. You may even consider switching car insurance providers.
Car Insurance Premiums FAQ
Depending on the car insurance provider, you could pay your car insurance premium monthly, biannually, or annually. With many providers, you can also earn a discount by paying for your policy in full.
The average car insurance premium is $136 per month for full coverage. Your specific premium will depend on a wide range of factors, including your driving record, physical location, and the type of coverage you need.
The best way to lower your car insurance premium is by shopping around and comparing quotes from various insurers. You can also contact an insurer to ask about available discounts.
A simple way to know if your car insurance premium is fair is by requesting and comparing quotes from other providers. You can request quotes online without canceling your current policy. Be sure to request the same level of coverage so you can make a fair comparison.
Your policy could be canceled if you don’t pay your car insurance premium by its due date. In most states, it is illegal to drive without auto insurance. The lapse in coverage could also cause your new premium to be higher.
Car insurance premiums often change. An accident or traffic ticket can cause a premium to rise, while a period of safe driving can bring it down. Premiums can also be affected by a move, a new driver on your policy, and even environmental factors beyond your control.
Typically, filing a claim with the car insurance company will cause your premium to increase.
A premium is the amount you pay for insurance regardless if you file a claim, while a deductible is the amount you pay out of pocket when you file a claim. You’ll always have to pay the premium, but you won’t pay a deductible unless you file a claim with your insurance.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.