A car insurance premium is the amount you pay to an insurance company for auto insurance coverage. It’s typically paid monthly, every six months or annually. Your car insurance premiums are determined by factors such as your driving record, credit, the type of car you drive, where you live and the coverage types you choose.
Let’s take a look at common factors in price and how to lower car insurance premiums.
How a car insurance premium is calculated
Auto insurance companies look at several factors when they calculate car insurance premiums. While these vary by state and insurance company, here are some of the most common factors:
- 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.
- Coverage types – Optional coverage types like collision and comprehensive insurance, and higher policy limits for liability car insurance and uninsured motorist insurance, will add to your bill.
How can I lower my car insurance premium?
There are several ways to lower car insurance premiums. Improving your driving habits so that you avoid tickets and accidents is one of the best ways to save money.
To improve driving skills, consider taking a defensive driving course or trying a free safe driving app like EverDrive, which tracks and scores driving habits.
Here are other ways you can save:
- 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 car insurance quotes.
- Bundle your insurance – “Bundling” insurance 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. That’s because the insurance company pays less if you file a collision or comprehensive claim. You can typically choose amounts between $250 and $2,000 or more for a deductible.
- Go paperless – Some auto insurance companies offer small discounts if you get your 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 versus how much you’re paying for collision and comprehensive coverage per year. For example, if your car is in an accident covered by collision insurance and is worth $5,000, with a $500 deductible, you would get an insurance check for $4,500. Keep in mind, if you drop collision and comprehensive coverage, you won’t receive an insurance check from your insurance company if it’s stolen, damaged by fire or flood, you crash into a deer or fence, or other problems.
Is it better to pay car insurance in full or monthly?
If you can, it’s usually better to pay your car insurance premium in full, whether it’s for a six-month policy or 12-month policy. Car insurance companies typically offer discounts for paying in full, and you’ll avoid any installment charges.
No matter how you decide to pay, make sure you 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 then result 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?
Car insurance is typically sold in six- or 12-month policy lengths. Your premium won’t increase during the term, but it could when you renew the policy. If you caused a car accident or got a traffic ticket during the policy period, you could get a rate increase. For example, the average insurance increase after an accident is about 36%.
Even if you don’t cause an accident or get a traffic ticket, you could see a rate increase. EverQuote users with good driving records reported a 2% increase in car insurance premiums last year.
How much should I be paying for car insurance?
How much you should be paying for car insurance depends on your state, car insurance company, driving record, credit and other factors. The average cost of car insurance in 2018 was $1,684 a year, based on premiums reported by EverQuote users with good driving records and coverage that included liability limits of 100/300/50 ($100,000 bodily injury per person, $300,000 bodily injury per accident, $50,000 property damage) and uninsured motorist coverage of 100/300 ($100,000 per person, $300,000 per accident).
Check out the map below to see the average car insurance premiums in your state.