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Car Insurance Premium Explained

Jason Metz

What's a car insurance premium?

A car insurance premium is the amount you must pay when your bill is due. Car insurance premiums are often paid monthly, but you can choose to pay a larger premium less often, such as every six months or year.

What’s the average car insurance premium?

The average car insurance premium is $1,684 a year, or about $140 a month. See the average car insurance cost in your state.

How is my car insurance premium calculated?

Each car insurance company applies its own calculation to determine your premium. Companies will usually be looking at the following:

  • Driving record – Auto insurance companies usually look at the last three to five years of a person’s driving record. They’ll look at the records for all the licensed drivers in your household. Car accidents, traffic tickets and past car insurance claims can lead to higher rates. For example, the average insurance increase for a speeding ticket is 26%.
  • Drivers – The age and driving experience of the licensed drivers in your household affect the premium. Car insurance for teens tends to be much higher because they have the highest chance for car accidents.
  • Vehicle – The type of vehicle you drive affects premiums. The Honda Fit, Subaru Impreza and Toyota Prius are among the cheapest cars to insure, to name a few. How you use the vehicle also affects rates. For example, personal use (like commuting to work) is cheaper than business use (like using your vehicle to visit job sites).
  • Location – Where you live affects rates. Urban areas generally have more accidents and car theft, and thus are often more expensive for auto insurance than rural areas.
  • Credit – Poor credit typically leads to higher car insurance premiums. The insurance industry correlates poor credit with a greater chance you’ll make an insurance claim. This practice is banned in California, Hawaii and Massachusetts.

  • How can I lower my car insurance premium?

    • Compare quotes – Car insurance premiums can vary by hundreds of dollars for the same coverage at different car insurance companies. One of the best ways to get cheaper insurance is to compare auto insurance quotes.
    • Bundle your insurance – “Bundling” is when you buy two types of insurance from the same insurance company, which typically gets you a discount. While bundling home and auto insurance is one of the best ways to save, you can also often bundle auto insurance with renters, condo, RV, boat, life insurance and other types of insurance.
    • Ask for discounts – There are several types of auto insurance discounts you might be eligible for, like good driver, good student and multicar discounts.
    • Lower your deductible – The higher the deductible you choose, the lower your car insurance premium will be.
    • Go paperless – Some auto insurance companies offer small discounts if you receive policy documents and bills electronically.
    • Electronic funds transfer (EFT) – You may get a small discount if payments are automatically withdrawn from your bank account.
    • Drop coverage types you don’t need – If you have an older car, you may not need collision and comprehensive insurance. A good rule of thumb is to look at how much your vehicle is worth (the maximum insurance payout) versus how much you’re paying for collision and comprehensive coverage per year. 
    • Improve your driving habits to avoid tickets and accidents. To evaluate your driving skills, consider trying a free safe driving app like EverDrive, which tracks and scores driving habits.

    Is it better to pay car insurance premiums monthly or in full?

    It’s usually better to pay your car insurance premium in full if you can. Car insurance companies typically offer discounts for paying in full, and you’ll avoid any installment charges.

    What happens if I don't pay on time?

    While some insurance companies have a grace period (typically seven days after the due date), failure to pay can result in a policy being canceled for nonpayment. Having your car insurance canceled creates a gap in your insurance history, which can lead to in a premium increase when you re-apply. And driving without car insurance could result in fines, license suspension and even jail time.

    Will my car insurance premium increase?

    Premiums can increase when you renew a policy, even if you haven't had a claim or accident. EverQuote users with good driving records reported a 2% increase in car insurance premiums last year. If you've caused a crash, the average insurance increase after an accident is about 36%.

    Check out the map below to see the average car insurance premiums in your state.