June 19, 2021

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What are car insurance premiums?

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If you’re new to the world of vehicle coverage, you may be wondering: What are car insurance premiums? This is a term that refers to the amount you pay your insurance company in exchange for car insurance during each coverage period. Everyone has to pay premiums, but with the right provider and discounts, they don’t have to be high. In this article, we’ll go over what car insurance premiums are, how they’re calculated, ways to lower your payments and more.

If you’re looking to decrease your car insurance premium, the best way to find the lowest rates is to compare offers from a few highly rated insurers. Our review team has taken a close look at the best car insurance companies in the industry, and we’ll give you a couple of recommendations here. To start finding lower premiums right away, enter your zip code below.

In this article:

  • Car insurance premium overview
  • How to pay your car insurance premium
  • How are car insurance premiums calculated?
  • Finding a lower car insurance premium when driving for personal use
  • Our recommendations for car insurance
  • Frequently asked questions
  • Our methodology
Car insurance premium overview

A car insurance premium is another word for your car insurance bill. It is the amount you have to pay to keep your auto insurance valid. Premiums are typically paid in six-month or yearly increments, though many providers offer three-month or even one-month premium options.

How to pay your car insurance premium

How you pay your car insurance premium depends on your particular provider, but the majority of car insurance companies allow customers to pay in the following ways:

  • By mailing in a check
  • Online through the insurer’s website
  • Online through the insurer’s smartphone app
  • Automatically by setting up autopay

Paying online, you’ll have the option of entering your credit or debit card information or linking your checking account for a funds transfer. If your vehicle is insured by a company that offers banking services, like USAA or State Farm, your insurance and checking account can be accessed using the same login information. 

Most insurers require that you pay your premium every six or 12 months, though many offer month-to-month payment plans too. Insurers usually also allow you to set up automatic payments so the money is drafted out of your bank account each month and you never miss a payment. You might be able to get a premium discount if you pay your entire annual premium upfront or enroll in autopay.

How are car insurance premiums calculated?

Now that you know what car insurance premiums are, let’s discuss how insurers decide how much you pay for coverage. There is no standard car insurance premium for every driver. These costs are highly personalized, and each insurer calculates car insurance premiums differently. However, most take into account the following when setting rates:

Factor Impact on Car Insurance Premiums
Type of Car The type and value of your vehicle can affect your rates. If your model of vehicle has high theft or crash rates — as do many sports cars — your insurance premium may be higher. Your vehicle’s value also determines the cost of comprehensive and collision coverage.
Driving Record If you have a poor driving record — speeding tickets, past accidents, traffic violations or other incidents — you will have higher rates for a set period of time, typically around three years after each violation.
Driving Habits How often you drive can affect your premium rates. Many insurers offer usage-based discounts for drivers that don’t use their vehicles often.
Location The crash and theft rates in your city can impact your premiums. Your state also matters, as each state has different insurance regulations and required minimum coverage.
Age Younger drivers typically pay more for auto insurance. The highest rates are assigned to drivers between the ages of 16 and 25. Experienced drivers receive lower rates until about 55 when rates rise slightly again.
Gender In some states, men are charged higher premiums than women or vice versa. In California, Hawaii, Massachusetts, Michigan, Montana, North Carolina and Pennsylvania, insurers are not allowed to base insurance premiums on gender.
Credit History In some states, having a better credit score means better auto insurance rates. In California, Hawaii, Massachusetts, Michigan and New Jersey, insurers are not allowed to set rates based on credit scores.
Marital Status Married drivers sometimes receive lower auto insurance rates than single drivers.
Coverage Level You’ll pay the lowest car insurance premium if you only carry your state’s minimum required coverage. Purchasing higher coverage limits or more exhaustive policies will increase your premium.
Deductible Collision and comprehensive insurance policies typically include a deductible. Choosing a higher deductible will result in a lower premium.
Discounts The discounts for which you are eligible affect your rate. Common car insurance discounts include a homeowner’s discount, military discount, multiple policy discount and pay-in-full discount.
Finding a lower car insurance premium

If you’re trying to lower your car insurance premium, there are several strategies you can use:

  • Drop unnecessary extra coverage: Reducing your coverage will reduce your premium. With older vehicles, it may not be worth maintaining comprehensive and collision insurance policies. The general rule of thumb is to reduce these types of coverage when your annual premium exceeds 10% of your vehicle’s total value. Keep in mind that you will need to maintain your state’s minimum insurance requirements to drive legally, so you shouldn’t reduce your liability coverage or other required policies.
  • Compare rates: Shop around and compare car insurance rates from multiple providers. You may find that you can save a significant amount by switching insurers.
  • Take a driver safety course: Many insurers offer discounts for completing a state-approved driver safety program. These courses are typically six or eight hours, and some states mandate that insurers offer discounts if you complete one.
  • Choose usage-based insurance, if it could benefit you: Several insurers offer usage-based discount programs. These are typically run through an app that tracks things like your braking distance, average speed and driving times.
  • Bundle your policies: If you have homeowners’ insurance, you can usually get car insurance discounts by purchasing both home and auto policies from the same insurer.
  • Pay in advance: Paying your car insurance premium upfront results in a discount with the majority of insurers.

What causes a car insurance premium to increase?

In some cases, you may find that your car insurance premium increases when you renew your coverage. This typically happens after you file a claim where you were at fault for a collision. It can also happen if you add another driver to your policy or if you receive a speeding ticket.

Our recommendations for car insurance

If you’re looking for car insurance and want to find the lowest car insurance premium, be sure to compare car insurance quotes from several providers. Use the tool below to get started, and consider checking out two of our highest-rated providers: Geico and USAA.

Geico: Best Overall

We named Geico as the best overall provider because of its strong industry reputation, positive customer service ratings across the country and comprehensive coverage options. Our cost research found Geico to be one of the lowest-cost providers in the country for many drivers.

Geico discount options include:

  • Multi-policy discount
  • Multivehicle discount
  • Good driver discount
  • Defensive driving discount
  • Good student discount
  • Driver’s ed discount
  • Military discount
  • Emergency deployment discount
  • Federal employee discount
  • New vehicle discount
  • Vehicle safety feature discounts
  • Antitheft device discount

USAA: Best for Military Families

Like Geico, USAA has a strong customer reputation and cheap car insurance coverage. The reason that it did not top our list of the best insurers is that coverage is not available for every driver. In order to qualify for a policy with USAA, drivers must be a member of the U.S. armed services or have a direct family member (parent, grandparent, or spouse) with a USAA account.

USAA discount options include:

  • Family discount
  • Loyalty discount
  • Multivehicle discount
  • Safe driver discount
  • Defensive driving discount
  • Good student discount
  • Driver training discount
  • New vehicle discount
  • Low annual mileage discount
  • Vehicle storage discount
  • Pay-in-full discount

Compare USAA and Geico head-to-head by reading our USAA vs. Geico review.

Frequently asked questions

How much is premium car insurance?

The price of a full coverage auto insurance policy varies from driver to driver. There is no one set price for everyone, and rates can vary dramatically between individuals. To research insurance costs for yourself, reach out for free car insurance quotes using our free tool.

How are car insurance premiums calculated?

Car insurance premiums are calculated differently by every insurer and usually by using a proprietary algorithm. The following factors are often taken into account when calculating auto insurance premiums: vehicle, driving history, driving habits, location, age, gender, credit score and marital status.

What does a six-month total policy premium mean?

A six-month total policy premium means that your selected car insurance coverage will be effective for six months after paying your premium. After six months, your insurance rate may be recalculated by your provider and is subject to change.

Our methodology

Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best car insurance companies. We collected data on dozens of auto insurance providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the insurers that scored the most points topping the list.

Here are the factors our ratings take into account:

  • Reputation: Our research team considered market share, ratings from industry experts and years in business when giving this score.
  • Availability: Auto insurance companies with greater state availability and few eligibility requirements scored highest in this category.
  • Coverage: Companies that offer a variety of choices for insurance coverage are more likely to meet consumer needs.
  • Cost: Average auto insurance rates and discount opportunities were both taken into consideration.
  • Customer Experience: This score is based on volume of complaints reported by the NAIC and customer satisfaction ratings reported by J.D. Power. We also considered the responsiveness, friendliness and helpfulness of each insurance company’s customer service team based on our own shopper analysis.

*Data accurate at time of publication.

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