What is a Car Insurance Premium?
What's a premium in car insurance?
A premium is the payment you make to your car insurance provider in exchange for coverage. Most insurance companies divide premiums into monthly installments or allow clients to pay the entire balance up front. Let’s explore what determines insurance premiums and assess a few ways to save.
What are the different kinds of car insurance premiums?
Premiums can be priced in monthly, six-month, or annual windows, depending on your insurance company and your personal choice. The typical length of a car insurance policy in the US is six months. Many insurance companies allow clients to pay off premiums monthly or at once.
If you pay your premium in monthly installments, a small processing fee may be added each month. This may be assessed if you pay with a debit or credit card, rather than directly from a bank account.
Paying your premium in full up front may lead to a discount in addition to the lack of processing fees. While the discount may vary by your state and company, you can usually save around 5% on your car insurance premium by paying in full.
How are car insurance premiums calculated?
Who you are, what car you drive, where you live, how much coverage you want, and which car insurance company you choose are the primary determining factors of the cost of your auto insurance premium. Below we briefly outline the impact of each. Check out our in-depth look at what goes into auto insurance rates.
Who you are
Your age, driving record, credit score, and other personal variables are major rating factors used to determine your premium. A family of four with a 16-year-old male driver will face substantially more expensive premiums than will a 35-year-old single female driver, because of the risk presented by additional, less-experienced drivers. If you’re considered a risky driver, i.e., more likely to file a claim, due to your age, driving record, or credit history, you will be charged a higher premium as a result.
The car you drive
A brand new convertible comes with higher premiums than does a pre-owned Honda Accord. In the event of a claim, collision or comprehensive coverage is responsible for repairing your vehicle. If your vehicle costs more to begin with, your premium will be higher as a result. Below are average six-month premiums by vehicle type.
|Annual Month Premium
Where you live
Car insurance is regulated at the state level and priced by the zip code. This means your state’s legislation and your area's claims history have major impacts on your premium. Michigan, for example, requires an extremely high threshold of no-fault insurance coverage. As such, the state's drivers’ endure the highest car insurance premiums in the nation.
More expensive premiums are also a fact of life in urban areas with greater vehicular density. The more likely you are to get into a collision, the higher your premium will be.
How much coverage you have
High liability limits and high levels of collision and comprehensive coverage will lead to more expensive rates. Carrying only state minimum coverage instead of high liability and physical coverage with low deductibles can save you an average of nearly $500 per six-month policy.
|Avg. Annual Premium
|State Minimum Liability Only
|100/300/100 BI/PD Liability Only
|50/100/50 BI/PD Liability Only
|State Minimum with $1,000 Deductible
|100/300/100 BI/PD with $1,000 Deductible
|50/100/50 BI/PD with $1,000 Deductible
|State Minimum with $500 Deductible
|100/300/100 BI/PD with $500 Deductible
|50/100/50 BI/PD with $500 Deductible
The Zebra’s Dynamic Insurance Rating Tool data methodology — auto insurance
The auto insurance rates displayed throughout this page come from The Zebra’s Dynamic Insurance Rating Tool, a proprietary insurance premium estimator that uses the most recent rate filings across the United States at the ZIP code level to provide up-to-date rate data. Most insurance companies file car insurance rates one to two times a year. This data comes from Quadrant Information Services, which sources the latest approved rate filings across carriers in each state from S&P Global. Quadrant then uses an internal QA process to validate the information and build reports before the data is programmed into The Zebra’s dynamic rating tool.
Rates are based on a sample driver profile — a 30-year-old single male driver with a Honda Accord and full coverage at these levels:
- $50,000 per person/$100,000 per incident for bodily injury liability
- $50,000 per incident for property damage liability
- $500 deductibles for collision and comprehensive coverage
To provide insight to consumers on how specific personal factors (like age, location and coverage level) can affect your premium, this base profile is then adjusted for different factors commonly used by insurance companies. For more information, see our full data methodology.
Your car insurance company
Another major contributing factor to auto insurance premiums is the pricing policy of the insurance company itself. You might be paying too much for car insurance simply because you’re with the wrong company. A great way to find a low premium for your vehicle is to compare a number of different companies.
Additional ways to lower your premium
If you’re worried your car insurance premium is too high, consider some of our suggestions below.
There are many times it can make sense to bundle your insurance policies with one company. You can earn a multi-policy discount and limit the number of insurance companies with which you deal. Below are some bundling options:
- Renters insurance + auto
- Homeowners insurance + auto
- Life insurance + auto
- Motorcycle insurance + auto
Anytime you file a claim, you should expect your premium to increase for the next three to five years as a consequence. While rate hikes may vary by claim type, most collision claims will increase your premium $308 per six-month policy. Over three years, this equates to $1,854. If you have a $500 deductible, your total charge for this claim would be $2,354.
Before you file a claim, following our guide below:
- Get an estimate for the damage at a local mechanic
- Use our State of Insurance analysis to determine how much an accident would increase your rates. Consider this figure over three years.
- Compare the rate increase plus your deductible to the out-of-pocket expense. If it is cheaper to file a claim, do that.
Your coverage level can have a major impact on your premium. If your vehicle is more than 10 years old or worth less than $4,000, you could consider dropping collision coverage. You could end up paying more in premium for this coverage than you would get in return after a claim.
If you do remove collision coverage, consider adding uninsured/underinsured motorist physical damage coverage (UNMPD). This protects your vehicle in hit-and-run situations.
Your rate can change every time you have a birthday, move, pay off a loan, or switch vehicles. Compare auto insurance quotes every six months to find a policy that suits your needs. Comparing auto insurance options won’t impact your credit score or raise your current rate.
Save an average of $440 a year by comparing your options.
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About The Zebra
The Zebra is not an insurance company. We publish data-backed, expert-reviewed resources to help consumers make more informed insurance decisions.
- The Zebra’s insurance content is written and reviewed for accuracy by licensed insurance agents.
- The Zebra’s insurance editorial content is not subject to review or alteration by insurance companies or partners.
- The Zebra’s editorial team operates independently of the company’s partnerships and commercialization interests, publishing unbiased information for consumer benefit.
- The auto insurance rates published on The Zebra’s pages are based on a comprehensive analysis of car insurance pricing data, evaluating more than 83 million insurance rates from across the United States.