Whether you are purchasing your first policy or paying for your renewal, you might wonder, “What is an insurance premium?” Simply put, a car insurance premium is money you pay to your insurance company in exchange for a policy. Car insurance premiums have many facets, including how often you pay them, how companies calculate them and how your premium may change over time. Bankrate’s insurance editorial team breaks down everything you need to know about your car insurance premium so you can better understand what you’re paying your insurance company and why.


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What is a car insurance premium?

The national average premium for a full coverage policy in 2022 is $1,771 per year, according to Bankrate’s study of average rates from Quadrant Information Services. For minimum coverage, it is $545 per year. A car insurance premium is the cost of your auto insurance policy and is sometimes called an insurance rate. Your total premium amount may cover you for six months or annually, depending on the policy length your company offers.

An insurance premium is what keeps your policy in force. As long as you continue paying the auto insurance premiums on time, your insurance company ensures financial protection for you — and your vehicle with full coverage — in case of an accident or other covered loss. When you stop paying the premium, the insurer has the right to cancel your policy after a certain period. Once your car insurance company cancels your policy, your coverage terminates, leaving you with a lapse of coverage if you don’t secure other coverage beforehand.

How often do you pay a car insurance premium?

How often do you pay for car insurance? It depends. When it comes to payment plans, your company probably has several options. You can pay it in full or in installments, usually monthly, quarterly or semi-annual, depending on the length of the policy term. You typically get the best rate on insurance when you pay in full and avoid installment and processing fees.

There are a few things to consider before choosing a payment plan. Although you may save money by paying your premium in full, you may want to consider installments if this lump sum will cause you financial hardship. Most companies will allow you to change your payment plan in the middle of your policy term, too. Perhaps you’d like to start your policy on a monthly payment plan, but later on find that paying in full makes more sense. If you have specific questions regarding your payment plan options, you may find it helpful to contact your agent.

How are car insurance premiums calculated?

Car insurance premiums are highly personalized. There are a number of factors that providers use to calculate your unique rate. Some of these factors you can control, and others you cannot. Here are some of the things that impact your car insurance premium:

Your age and state

How old you are and where you live are two of the biggest factors that impact your car insurance premium in most states. Younger drivers, particularly teenagers, typically pay the highest premiums for car insurance because they have the least on-road experience. Car insurance costs also vary significantly by state. Each state’s Department of Insurance determines how individual factors can be used when determining auto insurance premiums. In states other than CA and MI, ZIP codes also matter. If your ZIP code sees more extreme weather, a large number of uninsured drivers or high accident and theft rates, your insurance costs may be higher than other ZIP codes in your state.

Your credit score

Your credit-based insurance score may be very important when applying for a car insurance quote. Insurance companies consider drivers with poor credit to be high-risk, meaning they are more likely to get into an accident or file a claim. Four states — California, Hawaii, Massachusetts and Michigan — currently prohibit the use of credit scores as a rating factor for car insurance. Nevertheless, improving your credit score may help you get a lower premium in many states.

Your driving record and claims history

Insurers look at your driving record and your claims history when determining your policy rate. Having traffic violations on your record indicate signs of a risky driver. As a result, the insurance company charges more for coverage. The same goes for insurance claims. Filing an insurance claim means you are more likely to file another one in the future. Increasing your insurance rate is the insurance company’s way of mitigating their risk and preparing for additional claims moving forward.

Your vehicle

The make and model of your car has a significant impact on the amount of your car insurance premium. For example, insurance on a brand new car or a luxury SUV can be much pricier than insurance on a 10-year-old used car. High-value cars are generally more expensive to fix if they are damaged or if you get into an accident. If your car gets totaled or stolen, the insurance company would have to compensate you based on the car’s current value. Generally, the higher the car’s value, the higher your insurance premium will be.

Your coverage

What’s included in your policy can affect how much your premium will cost. Most states have auto insurance requirements, typically involving liability coverage for bodily injury and property damage, along with other types like uninsured/underinsured motorist coverage or personal injury protection. If you want coverage beyond the minimum or require comprehensive and collision coverage, your rate will likely be higher, but also offer more financial protection. In addition to full coverage, optional protections like towing, rental reimbursement and sound system coverage may also be added. They can increase the price, but the benefits may outweigh the cost.

Other drivers on your policy

Adding one or more drivers to your car insurance policy will impact rates, whether the impact is an increase or decrease in your premium. This is because insurers assess the overall likelihood of accidents and claims, including the individual risk level of all listed drivers. The additional driver or drivers’ driving history and other personal rating factors will be considered during underwriting.

Adding a young driver to an adult driver’s insurance policy typically increases the rate for the policy, as having a teen driver on a policy increases the statistical risk that the vehicle will be in an accident.

How to save on car insurance premiums

Although car insurance can be expensive, there are many ways that you can lower your premium. Here are some options for getting a cheaper car insurance rate:

Apply discounts

Almost every insurance company offers discounts that can lower your premium. Some discounts are more significant than others. When you are shopping for car insurance, pay attention to the discounts that each provider offers. Common discounts include being a good student, being claims-free, participating in a telematics program, having an anti-theft system in your car and bundling your insurance policies.

Pay your premium in full

As mentioned, paying the annual cost of your premium in full can help you get a lower rate, if you can afford the upfront cost. Many insurance companies offer this discount, although the exact savings vary by insurance company. If your insurance rate is expensive, even a discount of 5 percent could be worthwhile.

Check your coverage

There are many different types of car insurance coverage, and the more you have, the higher your insurance premium can be. The type of coverage you choose also impacts your insurance costs. Most states require a minimum amount of liability coverage. You may also add comprehensive coverage and collision coverage, which provides physical damage coverage to your car if it’s damaged or totaled in a covered claim.

If price is a concern, review your policy to ensure you’re only paying for the coverage types that you need, and check for duplicate coverage. For instance, you might already have roadside assistance through your credit card provider.

Frequently asked questions

    • The best car insurance company varies for each driver. If you want to find the best car insurance company for you, it may be helpful to determine the factors that are most important to you as a driver. Some drivers are looking for the cheapest rates, while others may want a company that offers a strong customer service track record or one with sophisticated digital tools, such as a user-friendly mobile app and online services. Once you determine what matters most to you with your car insurance policy, you can request quotes from the companies that meet your unique needs.
    • Your car insurance premium can go up at different times for different reasons. Insurance premium increases during your policy period are usually due to policy changes, like adding a vehicle or adjusting your coverage.

      Your premium can also increase at your renewal, which can be due to a change in your driving record or company-driven. For instance, if you receive a speeding ticket in the middle of your policy term, the surcharge associated with the ticket is added to your upcoming renewal rather than immediately. Additionally, many drivers may find that auto insurance rates have increased in 2022 due to no fault of their own — inflation can significantly impact how much you pay for car insurance. These company-driven rate changes also take place at your renewal.

    • As of 2022, the average car insurance premium in the U.S. is $1,771 per year for full coverage, according to Bankrate’s analysis of annual rate data from Quadrant Information Services. The average price of minimum car insurance coverage is $545 per year. Keep in mind, though, that car insurance rates are unique to each driver and may vary based on a range of factors, so your rate will likely differ from the average. These factors can include the coverage selections, the make and model of the vehicle, your driving history, the number of miles driven per year. It may also include your credit score and age in some states.
    • A car insurance quote and a car insurance premium may be similar, but they aren’t the same thing. A quote is the amount of money a car insurance company predicts it will charge for a policy, and it’s based on the coverage package you select and the information you give during the application process. Quotes are generally accurate, but the projected price may change once the company checks your driving record. For this reason, it’s essential to be forthright when answering questions about your driving record to get the most accurate quote.

      On the other hand, a premium is the money you pay to your insurance company in exchange for coverage.