A car insurance premium is the amount of money you pay your insurer for coverage that protects your vehicle and yourself. Premiums are typically paid monthly, biannually or sometimes annually.
Insurers consider several factors when setting a premium, including your driving record, age, gender, credit score (in most states) and vehicle details. The coverage levels and deductibles you choose will also raise or lower your premium.
- Your car insurance premium is the amount you pay your insurer for coverage. Your premium is your car insurance bill.
- According to a rate analysis by CarInsurance.com, the average cost of car insurance in the U.S. is $1,682 per year for 100/300/100 full coverage insurance.
- If you fail to pay your car insurance premium, your insurer will cancel your coverage after a grace period and you will no longer be covered or legally able to drive on the road.
What is a premium in car insurance?
Your car insurance premium is simply the amount you pay your insurer for coverage. It’s just your insurance policy invoice.
In most cases, you can pay your premium in full in advance for either a year of coverage or six months of coverage, depending on your term length or monthly, depending on how you choose to be billed. You’ll earn a small discount if you pay for your policy upfront.
Insurance premiums are based on a variety of factors. Your insurer will look at your personal risk factors, the vehicles you are insuring as well as the coverages you choose. Insurance companies use proprietary algorithms to set rates, so premium quotes can vary dramatically between insurers.
If you fail to pay your premium, your policy will be canceled after a grace period, and you will be uninsured, which makes it illegal to drive in almost every state. In addition, if you are at fault for an accident, you will be responsible for all medical, legal and repair costs.
How to calculate insurance premiums
Insurers consider a wide variety of factors when setting a premium. They take a look at your personal risk factors as well as the risk factors of your vehicle.
Here are just a few things that insurers will look at when setting your rates:
- Personal factors: Your age and gender will impact your rates; young males will pay the most for car insurance. Insurers will also consider your address and local crime rates as they are responsible for replacing your vehicle if it is stolen.
- Driving history: Keeping your driving record clean will help keep your premium low. If you have a speeding ticket, accident or claim on your record, you will pay more for coverage.
- Credit score: Most states allow insurers to consider your credit score when setting a premium and if you have a low credit score you will be paying more for coverage. Statistics show that drivers with low credit scores file more claims, so keep your credit score clean for the best rates.
- Vehicle: The type of vehicle you drive will impact your premium. Expensive, sporty vehicles with a big engine under the hood will always be more expensive to insure. Stick to vehicles popular with families to keep your premiums affordable.
- Coverages: The coverages and coverage levels you choose will impact the cost of your insurance. However, choosing lower coverage levels can backfire if you are in an accident and are underinsured.
- Deductible: Choosing a higher deductible will lower your premium. Always choose a deductible that you can easily afford in the event you have to make a claim on the policy.
- Discounts: Insurers offer plenty of discounts so make sure you are getting all discounts that you are qualified to receive.
What is the difference between a deductible and a premium?
Your car insurance premium is the amount you must pay for insurance coverage. It’s your monthly (or you can pay in full) car insurance bill, just like a car payment or monthly cable bill. It is the amount you have agreed to pay your insurer for coverage.
Most car insurance policies come with a deductible – the amount you must pay out of pocket before your policy will kick in to cover the rest. Not all coverages have a deductible – liability typically does not come with a deductible – but collision, comprehensive, uninsured motorist and sometimes personal injury protection coverages have a car insurance deductible.
In most cases, you can choose your deductible – the higher your deductible, the lower your premium. But a cheaper deductible will raise your premium. Common deductible amounts are $500, $1000 up to $2,500 or more.
What is the difference between insurance limits and premiums?
Your premium is the amount you pay for your insurance, while your coverage limits indicate the maximum amount your insurance company will pay out for a claim.
Liability coverage, required in almost all states, has very specific coverage limits. Liability insurance will help cover medical, legal and repair bills for injuries or property damage you cause. Liability does not pay to repair your vehicle or cover your medical bills.
Example: Liability coverage is usually shown as three different numbers, which indicate your coverage limits. As an example, 100/300/50 translates into the following:
- $100,000 is the bodily injury limit per person, which means your insurer will pay out a maximum of $100,000 per person for injuries in an accident you caused.
- $300,000 is the maximum amount your insurer will pay out for everyone injured in an accident.
- $50,000 is the maximum amount your insurer will pay per accident for property damage you cause.
When it comes to collision and comprehensive coverage, your insurer pays the actual cash value (ACV) of your vehicle.
What is the difference between a car insurance quote and a car insurance premium?
A car insurance quote is an estimate from an insurance company of what they will charge for insurance coverage. Insurers do not typically investigate your risk factors for a quote as deeply as they will when writing an actual policy. This means that your quote will certainly be in the ballpark of your final premium, but the final number may be higher or lower.
Once you have agreed to the quote, your insurer will calculate your actual premium after they dig into your risk factors a bit deeper. They will consider your credit score (in most states), driving record, location, vehicle make/model and more to calculate the premium you will have to pay for coverage.
Check out our detailed guide on how to get a car insurance quote
When must you pay a car insurance premium?
Most insurance companies let you choose how you pay for your car insurance. You can usually pay for a policy monthly, biannually or sometimes annually. Most insurers offer a discount if you pay the full premium upfront.
What happens if you don’t pay your car insurance premiums?
If you fail to make your car insurance payment, your policy will lapse, and you will not have coverage. In most states, you must carry specific insurance coverages to drive legally, so if your policy lapses, you can’t be on the road.
Driving without insurance is a major infraction and if you are responsible for an accident, the legal, medical and repair costs will fall on you.
In most states, your insurer cannot cancel your policy immediately. Depending on where you live, your insurer should have a grace period ranging from 10 to 25 days – it varies by state. Once the grace period passes, your insurer is free to cancel your policy but, in most cases, they will need to notify you via email or letter that your policy is being canceled.
Why do car insurance premiums increase?
Once your policy is in place, your insurer cannot increase your premium. However, when renewal time rolls around, your insurer will re-evaluate your risk factors and recalculate your premium.
Here are a few things that can push your rates up:
- Speeding or other tickets: If you were caught speeding, your premium will likely be headed up at renewal time. Any moving violation will raise your rates, but a DUI or reckless driving charge will skyrocket your premium. Drive safely out on the road and avoid tickets to keep your premium affordable.
- At-fault claim: If you are responsible for an accident or other incident and have to file a claim your rates will increase. If the damage is minor, you may want to cover repairs out of pocket to avoid a premium increase.
- Dip in credit score: Statistics show that drivers with poor credit scores tend to file more claims, so insurers charge more for coverage. If your credit score takes a negative turn, you could end up paying more for coverage. Most states allow insurers to consider your credit score when setting a premium so if your credit score is nose-diving your coverage will cost more.
How can you lower your car insurance premium?
If your car insurance premium is headed up, there are a few things you can do to help keep it affordable.
Here are a few tips to help lower your insurance rates:
- Shop your coverage: This is probably the best way to save money on insurance coverage. Insurers rate risk differently, which can result in dramatic differences in premiums. Shop at least five insurers and make sure you are comparing apples to apples regarding deductibles and coverage levels.
- Discounts: Insurers offer plenty of discounts, so it is important to make sure your insurer is applying all available discounts to your policy. Have your agent or insurer make sure all discounts that you qualify for are being applied to your policy.
- Raise your deductible: The higher your deductible, the lower your premium. If you can afford to raise your deductible, you should see serious savings on your premium. Always choose a deductible you can easily afford if you have to make a claim on your policy.
- Improve your credit score: Most states allow insurers to use your credit score when setting a premium and if you have a low score, you will be paying more for coverage. While improving your credit score won’t happen overnight, if you can raise your credit score, your premium will head down.
FAQ: Car insurance premiums
What is the average car insurance premium?
According to a 2022 rate analysis by CarInsurance.com, the average cost of car insurance in the U.S. is $1,682 per year for 100/300/100 full-coverage insurance. However, premiums are based on various factors so your personal rates will vary.
Is it better to pay car insurance monthly or every six months?
In most cases, your insurer will offer a discount if you pay the premium in full, so if you can afford to pay the six-month premium upfront, you will save some money.
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Laura Longero
Executive Editor
Laura is an award-winning editor with experience in content and communications covering auto insurance and personal finance. She has written for several media outlets, including the USA Today Network. She most recently worked in the public sector for the Nevada Department of Transportation.
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Leslie Kasperowicz is an insurance educator and content creation professional with nearly two decades of experience first directly in the insurance industry at Farmers Insurance and then as a writer, researcher, and educator for insurance shoppers writing for sites like ExpertInsuranceReviews.com and InsuranceHotline.com and managing content, now at CarInsurance.com.
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