Your car insurance premium is the specific amount of money you pay a company to provide insurance protection for yourself and your vehicle. Premiums are usually paid either monthly, every six months, or annually and are determined by various factors, including your driving record, age, and the coverages you select as part of your policy.
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How do car insurance companies calculate premiums?
Insurance companies figure out how to calculate insurance premiums using their own unique formulas. Your total auto policy premium is highly personalized.
Key factors of a car insurance premium include:
- Your record behind the wheel: At-fault accidents and speeding tickets are key factors of car insurance premiums; the fewer incidents on your record, the less you typically pay. The one exception? New drivers. Your car insurance premium is typically higher if you're a new driver because you haven't yet established a driving history.
- Your age and demographics: Teenagers and senior drivers are considered higher risk behind the wheel, so they generally pay higher car insurance premiums than middle-aged drivers. Where you live also impacts your premium. For example, if you live in a densely populated city, there's a greater risk of collisions, theft, and other harm. That could translate to higher insurance rates, especially if you carry comprehensive car insurance coverage or collision car insurance coverage.
- Your car itself: If you drive an expensive car, your car insurance premium could be more expensive due to the cost to repair or replace it, assuming you have comprehensive and collision coverage. On the other hand, safety technology and anti-theft security features can help lower your premium.
- Your mileage: Many insurance companies consider how often you drive when setting rates. If you drive frequently and for long periods of time, you could see a higher premium.
- Your coverage and deductible: The more coverages you carry, the higher your car insurance premium will be. Likewise, the higher your coverage limits, the more you'll pay. The deductible you choose also impacts your rate; a low deductible means a higher rate, while a high deductible means a lower rate.
Learn more about what impacts your car insurance rate.
What is an insurance quote vs. a car insurance premium?
An insurance quote is an estimate of how much your policy will cost, provided by the insurance company before you buy. Your insurance premium is the amount you agree to pay for the coverage detailed in your policy, which is usually the same amount as the quote you received. If you're wondering how to determine what your annual premium will be, it's best to get a quote.
Pro tip:
When providing personal information for an insurance quote, be honest about your driving history. The chances are that the company you choose will find out about any fender benders before issuing a policy. If you don't disclose prior accidents you were involved in, your car insurance premium could be significantly higher than the quoted amount.
What is a car insurance premium vs. a deductible?
As noted above, your car insurance premium is the amount you agree to pay for your policy. Your car insurance deductible is the amount you agree to pay out of pocket for certain types of claims, usually for claims filed under your comprehensive or collision coverage.
Is car insurance paid monthly or annually?
Most insurance companies let you choose between paying your car insurance premium monthly, every six months, or annually. You could receive an auto insurance discount if you choose to pay the full amount for a six-month or annual policy upfront. Learn other ways to find cheap car insurance.
When do car insurance premiums go up — and why?
Policies from most insurance companies get packaged in six- and 12-month policy periods. Assuming your coverages, driving record, and other basic criteria remain the same for that entire term, your premium typically won't change. After that term period ends, your insurance company may revise your premium, which could result in your car insurance rate going up or down.
Remember, insurers use their own unique formulas to determine their rates — and they continue to evaluate their policyholders over time. A clean driving record or switching to a safer car can help lower the cost of your car insurance premium. In contrast, filing multiple accident claims over a short period of time or getting a speeding ticket could lead to a higher premium.
Looking for more information about auto insurance? Our car insurance resource center has you covered.
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Learn more about car insurance policies.
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