There are a lot of different terms in the world of auto insurance, and one you hear often is car insurance premiums. So what is a car insurance premium, and why does it matter?
Your car insurance premium is the amount you pay your insurance company for coverage on your vehicle. Unlike your insurance deductible, you pay your premium even if you never get into an accident and need to use your coverage.
Most insurance providers allow you to pay your premium annually, every six months, every three months, or monthly, depending on what works best for your budget. If you’re trying to save money on coverage, bringing down your car insurance premium is often the best approach.
Learn some strategies on how to lower your car insurance premium in this guide.
Factors Affecting Car Insurance Premium Costs
Now that it’s clear what a premium is in car insurance, it’s worth digging deeper into what affects your auto insurance premiums. When insurance companies calculate the premiums they’re going to offer customers, they weigh lots of different factors. That’s why one person’s car insurance costs can be much higher or lower than someone else’s.
Here are the main categories of information insurance companies use to set auto insurance rates.
Driver-Related Factors
Car insurance premiums are set for individual drivers based on their driving records and other personal details. The insurance company tries to get a full picture of what kind of driver each person is and how likely they are to get into an accident. When you compare car insurance premiums, individuals who seem more likely to file claims typically have higher rates.
For example, someone with a clean driving record generally pays a lower auto insurance premium than someone who has a history of accidents or traffic violations. That’s why there’s an average insurance increase after an accident of about 36% higher premiums. The average insurance increase for a speeding ticket is 26%.
Other driver-related factors that insurance companies may use to determine premiums include:
- Age: Younger drivers tend to have higher premiums since they’re generally more likely to get into accidents
- Claims history: Someone with a history of making claims against their auto insurance will generally have higher premiums.
- Credit history: Insurance companies may offer a driver with a higher credit score lower premiums than a driver with a lower score.
Vehicle-Related Factors
The type of vehicle you’re insuring will also affect your insurance quote. Generally, the more valuable the vehicle, the higher your insurance premiums will be. The cheapest cars to insure are typically older, less expensive models.
If your vehicle has advanced safety features, insurance companies may offer auto insurance discounts.
Policy-Related Factors
Then, there are factors related to the auto insurance policy you select, such as:
- Deductibles: A higher deductible—the amount you pay out-of-pocket when you make an insurance claim—will generally mean lower insurance premiums.
- Coverage limits: If you select higher coverage limits, you will also have to pay higher premiums.
- Types of coverage: Opting into optional car insurance coverage, such as comprehensive and collision coverage, will also lead to higher premiums.
Geographic and Usage Factors
Finally, auto insurance companies weigh factors related to where you live and how much you use your vehicle to determine your premiums.
If you live in an area with higher accident rates, you will typically have to pay higher premiums. Drivers who use their vehicles more often may also face higher rates.
How Insurance Companies Calculate Premiums
Insurance companies weigh all these different factors to arrive at an auto insurance quote for each applicant. They’re using all this information to run risk assessment calculations that estimate how likely you are to file a claim against your insurance policy. The more likely insurance companies think someone is to file claims, the higher their premiums will generally be.
Manage and Reduce Car Insurance Premiums
The best way to reduce your car insurance premiums is to try to adjust these factors so that car insurance providers see you as a lower-risk driver. Try strategies like:
- Maintaining a clean driving record: Driving safely and avoiding accidents and traffic violations can help bring down your premiums over time.
- Improving your credit score: Working on boosting your credit score by making consistent payments and bringing down your debt can also reduce your premiums.
- Choosing higher deductibles: Selecting a higher deductible will lower your premium but lead to higher costs if you do need to use your insurance policy. Find a happy medium you’re comfortable with.
- Bundling policies and discounts: Bundle multiple policies, such as your home and auto insurance, for discounts.
Get Your Quote Today
If you’re not happy with your current auto insurance premium, one of the best ways to bring it down is to shop for different insurance policies and compare auto insurance quotes. Another insurance company may offer much better rates on your coverage. And EverQuote makes the search for better car insurance options easy.
With EverQuote, you simply enter some information about your driver profile and location to get a list of your custom options. You can compare rates and policy details at a glance, helping you save money and time. Get your free custom comparison from EverQuote in just a few minutes.