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What is a car insurance premium?

A car insurance premium is what you pay for coverage. In general, you will pay higher insurance premiums if you're a greater risk for your insurer to cover.

Andrew Hurst

By

Andrew Hurst

Andrew Hurst

Senior Editor & Licensed Auto Insurance Expert

Andrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

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This article has been reviewed by a licensed Policygenius expert to ensure that sources, statistics, and claims meet our standard for accurate and unbiased advice.

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By

Ian Bloom, CFP®, RLP®

Ian Bloom, CFP®, RLP®

Certified Financial Planner

Ian Bloom, CFP®, RLP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, he was a financial advisor at MetLife and MassMutual.

Updated|6 min read

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Your car insurance premium is the amount you pay your insurance company for coverage. Insurance companies determine your premiums according to risk factors, like driving history, age, credit score, and more. Because auto insurance premiums depend on a wide range of factors, your rates will be different from what others pay.

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Depending on the insurer, you may choose to pay your insurance premium monthly, every six months, or annually. You're responsible for paying your car insurance premiums in order to maintain your insurance coverage. If your premiums are too high, you may be able to lower your costs by adjusting your coverage levels and deductibles, or switching companies.

Key takeaways

  • You pay your car insurance premium in order to receive coverage from your insurance company.

  • Your insurance company sets your auto premiums depending on a range of risk factors, especially your driving history, age, credit score, and location.

  • Depending on your preference, you may pay an auto insurance premium on a monthly, semi-annually, or annual basis.

  • If you fail to pay your car insurance premiums, you could face a lapse in coverage and have to pay more for coverage in the future.

What is an auto insurance premium?

An auto insurance premium is what you pay for coverage. When you shop for car insurance and request a quote, you will receive an estimate of the amount you'll be responsible for paying. Your insurance company will require you to pay for coverage once per month, every six months, or annually, depending on your preference.

Generally, the riskier your insurer believes you are to cover, the higher your auto premiums will be. That’s why a teenager with little experience driving, or someone who has a history of accidents, will pay more for insurance than a middle-aged driver without any past claims or tickets on their record.

As long as you pay your auto insurance premiums on time, you will legally be allowed to drive and your policy will stay active (meaning your expenses will be covered in the event of an accident or property loss). If your payments are late, your insurer may cancel your policy and your license could be suspended until you reinstate your coverage.

How are car insurance premiums calculated?

Insurance companies consider a variety of risk factors when calculating your car insurance premiums. In most states, insurers are allowed to set your premiums based on your on-road behavior and details about you and your car. 

Each insurance company sets rates differently, but there are a few common variables that most providers use to set your premium:

  • The amount of coverage you buy: As you add more coverage to your policy and purchase add-ons, like roadside assistance, rental car coverage, and gap coverage, you'll be more protected in the event of an accident, but your insurance premiums will go up.

  • Your location: Car insurance premiums vary depending on your state, city, and even ZIP code. Areas with more drivers, high rates of uninsured drivers, and high medical costs often pay more for coverage. 

  • Your driving history: Drivers who have been involved in crashes, gotten tickets, or who are inexperienced behind the wheel pay higher rates than their counterparts. 

  • Your insurance history: Having no prior insurance coverage or a past lapse in your coverage can cause your premiums to be more expensive than average.

  • Your age: Insurers charge younger drivers, especially teenagers, substantially higher premiums for coverage.

  • Your credit score: In most states, people with poor credit scores pay more for insurance, while those with better credit history can see discounted premiums.

  • The type of vehicle you own: New, expensive vehicles with lots of technical features cost more to insure than more basic models.

  • How often you drive: Companies offer lower premiums to drivers who use their cars less, since they aren't as likely to be involved in an accident.

  • The number of people on your policy: As you add more people to a policy as drivers, your premiums will increase — especially if someone you add is considered to be a high-risk driver; however, most companies also offer discounts for insuring more than one vehicle. 

→ Read about the factors that can influence what you pay your car insurance 

What is the average car insurance premium?

On average, the annual car insurance premium for the entire country is $620 for minimum coverage for 30-year-olds. For a full-coverage policy, the average premium is $1,724 per year — an increase of 178%.

You can typically choose whether to pay your premiums in-full at the start of the policy term or in monthly payments. Companies usually offer a discount for paying in full, so you'll actually pay a little less over time if you pay yearly as opposed to bi-annually or monthly.

Coverage level

Monthly

Six-month

Annual

Minimum

$52

$310

$620

Full coverage

$144

$862

$1,724

Rates are for a 30-year-old driver

Premiums vary substantially depending on where you live. In the cheapest state for car insurance, North Carolina, the average insurance premium is 67% less than it is in the most expensive state for coverage, Louisiana. This amounts to a difference of more than $2,000 between the two. 

→ Read more about how your premiums vary by location, vehicle, and more

Why do auto insurance premiums go up?

The cost of your auto insurance could go up because of a change in how risky insurance companies believe it is to cover you or a change in your policy. Premiums may also go up because of changes in the industry, like after a year when insurers undergo significant losses or the minimum requirements in a state change.

For instance, if you're involved in an accident and have to make a claim, your premiums will go up because your insurer believes you're likely to get in another accident later on. Since claim settlements can be expensive for insurance companies, they will raise your rates as a way to protect themselves against future losses.

Your rates could also go up if you modify your insurance coverage. This may include adding another vehicle or another driver to a policy, purchasing greater amounts of liability coverage, adding endorsements, changing your address, and more.

→ Read more about what causes you to pay more for car insurance

How to lower your auto insurance premiums

Though you might not be able to change the qualities about yourself that could cause you to pay more for car insurance, like your age or location, there are still several ways that you can lower your auto insurance premiums if your rates are too high.

Instead of reducing your coverage levels and leaving yourself unprotected in the event of an accident, you may be able to get lower rates by changing your policy's deductibles — the amount you pay to settle a claim. By raising your deductibles for comprehensive or collision coverage, you can lower your car insurance premium and retain full coverage.

You may also lower your insurance premiums with auto insurance discounts. While any discounts you qualify for were applied to your cost of coverage when you bought your policy, you may be able to keep lowering your rates if you:

  • Complete a defensive driving course

  • Enroll in paperless billing

  • Outfit your vehicle with safety devices

  • Sign up for your insurer's telematics or usage-based discounts program

Your premiums will also fall naturally, even if you're a high-risk driver. The longer you have an insurance policy and avoid accidents, tickets, and claims, your premiums will steadily get cheaper.

The best way to lower your auto insurance premiums is by comparing quotes from multiple insurers. Although insurers consider many of the same qualities when setting your premiums, some are known for offering affordable rates to high-risk drivers and people living in areas where rates are higher than average. By shopping around for coverage you can be sure to find the company with the best rates for drivers like you.

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How often do you pay car insurance?

Most insurance companies will allow you to pay your premium every month, every six months, or every 12 months, according to your preference and the length of your policy. When you sign up for coverage, your premiums are locked in for your policy's whole term, even if you are involved in an accident or get a ticket.

Since it's also common for insurers to offer a discount to customers who pay their entire premium at once, that's the best option for most people who can afford it. If, on the other hand, you can't afford to pay in full at the start of your policy, you may be able to get a lower premium by signing up for automatic payments, too.

How to pay your auto insurance premiums

Depending on your insurance company, you may be able to pay your car insurance premiums a few different ways. Commonly, insurers allow you to make payments via:

  • Automatic charge to a credit or debit card

  • One-time charge to your credit or debit card

  • Bank account withdrawal

  • In-person charge at your insurer’s local offices

  • Electronic or paper check

You may also be able to pay your car insurance premiums online. Most companies have their own apps or websites where you can manage your claims, contact your insurer's customer service center, and pay your premiums.

What happens if you don’t pay your car insurance premiums?

If you choose to pay monthly or twice per year, it's important to remember to make your insurance payments on time. If you pay your premiums late you could face late charges that will lead to extra fees. 

Your policy may also lapse if you forget altogether to pay your premiums. If your policy lapses due to nonpayment, you could be fined, have your license taken away, or spend time in jail if you continue to drive your car after losing coverage.

When you reinstate your insurance, you will face higher car insurance premiums for not having continuous coverage. It's possible that your insurer may not allow you to reinstate your policy after it lapses. If this happens, you will have to find a new provider before you can drive legally again

→ Learn about what happens when you forget to pay for car insurance

Frequently Asked Questions

Are car insurance premiums less expensive if you renew coverage?

Most insurance companies offer drivers who renew their coverage a discounted rate. However, it's possible that your insurance premiums will still go up and be more expensive after renewing if you were involved in a crash or got a ticket during the previous year. Industry-wide price increases may also cause your rates to go up after renewing.

What is included in a basic car insurance premium?

A basic car insurance premium includes the cost of bodily injury and property damage liability coverage, along with uninsured motorist protection, personal property protection, and any other types of required coverage. However, a policy with only the basic forms of insurance coverage could leave you unprotected in the event of an accident or property loss.

How much car insurance do I need?

It's best to carry as much bodily injury and property damage liability as you can comfortably afford. This is the best way to protect yourself against any expenses that might come up after a crash or property loss. It's also a good idea to get comprehensive and collision coverage with reasonable deductibles, so that you can balance affordability with practicality, should you need to make a claim.

If I cancel my car insurance will I get a refund?

As long as you've paid your insurance premium in advance, your old insurance company has to refund the remaining balance for the time left under your policy. For example, if you paid for an entire year and canceled six months through, your insurer would refund you 6 months' premiums.

Author

Senior Editor & Licensed Auto Insurance Expert

Andrew Hurst

Senior Editor & Licensed Auto Insurance Expert

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Andrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

Expert reviewer

Certified Financial Planner

Ian Bloom, CFP®, RLP®

Certified Financial Planner

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Ian Bloom, CFP®, RLP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, he was a financial advisor at MetLife and MassMutual.

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