What Is a Car Insurance Premium?

What is a car insurance premium?

A car insurance premium is the amount you pay your auto insurer to protect yourself and your vehicle. An insurance company calculates this amount based on its best estimate of your likelihood of filing a claim for reimbursement or having someone else file a claim as a result of your actions in causing an accident.

The premium is determined by a variety of factors, including the coverages you choose, your driving record, region, and age. Depending on your payment plan and the length of time your policy covers, you may pay your auto insurance premium monthly, semi-annually, or annually.

How Are Car Insurance Premiums Calculated?

The larger the risk you are insuring, the higher the premium. If you are a motorist who is likely to file a claim due to your age, driving record, type of vehicle, claims history, car theft in your area, or other criteria, your insurance company may charge you a higher premium or refuse to insure you. 

Single male drivers under the age of 25 pay the highest premiums because studies show they have the greatest accident rates among millions of drivers. In contrast, a middle-aged person with no history of claims, accidents, or citations is likely to pay a lesser rate. Statistics indicate that this individual is less likely to file a claim.

However, premiums are also calculated based on a larger increase in claims payment costs. These include the escalating, inflation-based costs of auto repair, theft, fraud, lawsuits, administrative fees, and, lastly, medical treatment for people involved in car accidents.

Car Insurance Premium Factors

Each state requires insurers to report the factors used to determine premiums. Here's a closer look at some of the most common factors influencing premiums.

• Driving record: Insurers consider the previous three to five years, including accidents and moving traffic infractions.
• Household status: Singles may pay more for insurance since insurers believe married couples have fewer accidents generally. However, any household driver with a poor driving record may have an impact on your rates.
• Claims history: This is based on your CLUE record, which includes seven years of personal property and auto claims.
• Vehicle type: Owners of newer automobiles, electric vehicles, sports cars, and high-performance autos may pay extra due to increased risk and repair expenses. 
• Location or ZIP code: People who live in regions prone to accidents, theft, or vandalism may pay more.
• Prior insurance coverage: If your policy lapsed, you may have to pay more.
• Discount eligibility: You could save money by bundling your house and auto insurance, taking defensive driving courses, or installing auto safety devices such as airbags.

Most states take into account the following. According to analysts at the insurance website The Zebra, any or all of these characteristics cannot affect your price in states such as California, Georgia, Hawaii, Massachusetts, Montana, North Carolina, New York, and Pennsylvania.

• Your credit history: While some jurisdictions prohibit the use of your credit score to determine your insurance price, others allow it. 
• Gender: While males normally pay greater premiums than females, gender is not considered in some areas. 
• Age: Although people under the age of 25 normally pay the highest rates for auto insurance, certain jurisdictions do not take age into account. 
• Education, occupation, and work status: Being employed and college-educated may result in lower insurance costs, however some states do not allow this criteria to be evaluated. 

Your state requires a minimum amount of liability insurance to cover harm to other people and cars that you are responsible for causing. Some premium cost considerations vary depending on the type of coverage purchased.

• Additional coverages: You can purchase coverage to safeguard your vehicle or passengers, or to cover damage caused by an uninsured motorist. 
• Liability coverage limits: You will choose these limits, which may result in higher premiums.
• Deductible levels: You can set your deductible for comprehensive and collision coverage.

How Much Is a Car Insurance Premium in 2024?

In 2024, the national average for car insurance premiums was approximately $1,759, or $147 per month. The Zebra provides further national 2024 averages depending on coverage and age categories.

*Full coverage here is defined as higher liability limits of 50/100/50 and comprehensive and collision coverage with a $500 deductible.

Tips for Lowering Your Car Insurance Premium

There are various things you may do to lower your auto insurance price.

Shop around

Get rates from the leading auto insurance companies. Compare costs to a group insurance plan offered by your workplace, association, organization, or even a local financial institution or buying club.

Tweak Your Coverage

Reduce or cancel your comprehensive or collision insurance if your car is worth less than $2,000. If you can afford to pay for the majority of repairs yourself, you could raise your deductibles for collision and comprehensive insurance. 

If you live in one of the few states that requires personal injury protection (PIP) but also provides medical payment (MedPay) coverage, you might consider canceling MedPay. Typically, PIP covers what MedPay does plus more. 

Ask about special discounts. 

You may be eligible for typical savings from your insurance company, such as bundling home and vehicle coverage or paying your policy in full. Different insurance providers provide various premium savings, including generous student reductions.

Avoid accidents and claims.

To improve your driving and claims records, take proactive measures to minimize accidents, auto theft, and citations. Any claim you make may increase your premium rate. 

Furthermore, reconsider making a claim if no other people or property were involved, such as a fender-bender involving only your fender and a garage wall. Also, consider the practicality of making an auto insurance claim if your deductible (the amount you pay first) is slightly less than any claim refund you may receive. 

Avoid fees 

Read your policy or chat with an agent about any costs that may be levied during the premium payment process. Find out how to prevent these fees. For example, autopay can help you avoid late fees, and paying a year in advance can help you avoid installment costs for monthly payments.

Update Your Insurer Regarding Changes

Some changes in your situation like moving to a new neighborhood, driving less, having fewer drivers in the household, marrying, or turning 21, 25, or 29, may result in cheaper rates.

The Bottom Line

Car insurance premiums are the amount you agreed to pay for auto insurance when you bought the policy. Simply searching around for coverage each year to get the greatest deal will help keep premiums low. Other ways to lower your premiums include making timely payments, raising your deductibles, and ensuring your insurer has the most up-to-date information.