Auto Insurance Annual Premium: How Much Does It Cost?

The annual premium for auto insurance is the amount of money you pay your insurance company for coverage for yourself and your vehicle. The national average premium for a full-coverage car insurance policy in 2024 is $2,314 per year, while the minimum coverage average is $644 per year. The amount of the premium is determined by various factors, including the driver's age, gender, location, driving record, and the type of car they own. The premium can be paid monthly, every six months, or annually, and it is subject to change based on the driver's history and the insurance company's models.

How is the premium calculated?

The premium for auto insurance is calculated based on a variety of factors, including personal characteristics, location, driving record, age, gender, credit history, and the type of car being insured. Here is a detailed breakdown of how each of these factors comes into play in determining the premium:

• Personal characteristics: In most states, age, gender, and credit history impact the premium. Younger drivers tend to pay higher premiums than older drivers due to their lack of driving experience. Male drivers often face higher premiums than female drivers, as statistics show that women tend to have fewer and less severe accidents. Additionally, individuals with poor credit history may be subject to higher premiums, as financial management skills can be indicative of potential future claims.
• Location: Urban drivers typically pay higher premiums than those in rural areas due to higher rates of vandalism, theft, and accidents. Even within a state, rates can vary based on the ZIP code, with large cities usually having higher premiums.
• Driving record and claims history: A clean driving record can result in lower premiums. Accidents, speeding tickets, and multiple claims may indicate a risky driver, leading to higher premiums. However, insurance companies usually consider these records for a limited time, typically three to five years.
• Age: Teenagers and senior drivers are considered higher-risk, resulting in higher premiums. Middle-aged drivers generally pay lower premiums.
• Gender: As mentioned earlier, male drivers tend to pay more for auto insurance than female drivers due to differences in accident rates and severity.
• Type of car: The make and model of the car significantly impact the premium. Insuring a brand-new, luxury, or expensive car will likely result in a higher premium due to the higher cost of repairs or replacement. On the other hand, safety features and anti-theft technology can help lower the premium.
• Coverage selections: The premium increases with more coverage types and higher coverage limits. Adding comprehensive and collision insurance, as well as optional coverages like roadside assistance, will increase the premium. Conversely, choosing lower coverage limits or dropping unnecessary coverages can reduce the premium.
• Mileage: Driving frequently and for long distances can lead to a higher premium, as it increases the chances of accidents.
• Additional drivers: Adding young or inexperienced drivers to the policy can increase the premium, as it raises the overall risk of accidents.

It is important to note that insurance companies use their own unique formulas to calculate premiums, and the weight given to each factor may vary. Comparing quotes from multiple insurers and customizing the insurance policy can help individuals find the best rates that fit their needs and budget.

How often must I pay?

How often you pay your car insurance premium depends on the payment plan you choose. You can usually pay your premium in full or in instalments, with monthly, quarterly, bi-annual, and annual payment plans available. Many insurance companies will let you choose your payment frequency, and you may even get a discount for paying a larger amount upfront.

If you are deemed an at-risk driver, you may be required to pay your entire premium upfront for the policy term. This is often the case if you have previously let your insurance lapse or need an SR-22 form on file.

When do premiums increase?

Auto insurance premiums can increase for a variety of reasons, some of which are within the driver's control, and others that are not.

Traffic Violations and Accidents

One of the most common reasons for an increase in auto insurance premiums is traffic violations and accidents. Speeding tickets, DUI charges, and other moving violations can cause your premium to increase, as they indicate a higher risk of having an accident. Even minor moving violations or accidents that are not your fault can lead to an increase in your premium. This is because insurers have data showing that some drivers have a propensity for not-at-fault accidents.

Changes to Your Policy

Making changes to your policy, such as adding a new vehicle or driver, can also cause your premium to increase. If you purchase a more expensive or sophisticated car, your rate is likely to go up as these vehicles are more likely to be stolen and cost more to repair or replace. Adding a new driver, especially a teen driver or someone with a poor driving record, can also increase your premium.

Claims in Your Area

Factors outside of your control, such as an increase in insurance claims in your area, can also lead to a higher premium. If your ZIP code has a high rate of theft, accidents, or weather-related claims, insurance companies may view covering drivers in that area as riskier, resulting in higher premiums.

Inflation and Repair Costs

Increases in car repair and replacement costs due to inflation can also contribute to rising insurance premiums. This is especially true for newer cars with more advanced technology, which can be pricier to fix. Overall maintenance and repair costs have risen in recent years, and these increases are often passed on to consumers through higher insurance premiums.

Other Factors

Other factors that may contribute to increasing insurance premiums include:

• Social inflation: The tendency of insurance losses to inflate at a higher rate than overall consumer inflation, including social forces such as increased litigiousness and larger tort awards.
• Supply chain issues: Shortages of computer chips and other necessary components during and after the pandemic led to increases in vehicle prices, which in turn influenced insurance premiums.
• Driving behavior: Distracted driving and other unsafe behaviours have contributed to an increase in accidents and fatalities, leading to higher insurance rates.

How can I lower my premium?

There are several ways to lower your premium. Here are some strategies to reduce the cost of your auto insurance:

Shop Around for Quotes

Compare prices and coverage from multiple insurance companies. Prices and evaluations of factors such as driving history, age, and credit history vary across insurers, so finding the company that best fits your profile can help lower your premium. Getting at least three price quotes and comparing identical policy coverage and limits will ensure an accurate price comparison.

Increase Your Deductible

A deductible is the amount you pay before your insurance policy kicks in. By requesting a higher deductible, you can lower your premium substantially. For example, increasing your deductible from $250 to $500 could reduce your premium by 15% to 30%. Going from $500 to $1,000 could save you over 30%, but be sure you can afford the higher deductible in case of a claim.

Reduce Your Coverage

If you have an older car, consider dropping collision and comprehensive coverage. These cover repairs or replacement of your car and may not be cost-effective if your car is worth less than ten times the premium. You can also lower your policy limits or drop unnecessary types of coverage to fit your budget and comply with state laws and lender requirements.

Bundle Insurance Policies

Purchasing multiple types of insurance, such as auto and home insurance, from the same company often results in a discount. This strategy can simplify your insurance and provide savings of 5% to 25%.

Explore Discounts

Insurance companies offer various discounts, including multi-car, vehicle safety, new car, good driver, and good student discounts. Ask your insurer about all available discounts to maximize your savings.

Improve Your Credit Score

In most states, insurance companies use credit-based insurance scores to determine a driver's likelihood of filing a claim. Improving your credit score can lead to better insurance rates, as individuals with good credit tend to receive lower quotes.

Take a Defensive Driving Course

Completing an approved defensive driving course can result in significant savings on your premium, sometimes up to 10% for three years.

Reduce Your Mileage

Some insurance companies offer low mileage discounts for motorists who drive fewer miles per year or carpool to work. You can also consider enrolling in usage-based insurance programs that monitor your driving habits and offer discounts for safe driving.

Choose an Insurance-Friendly Car

Insurance companies consider the type of vehicle you drive when determining your premium. Factors such as the car's value, body type, make, age, safety record, theft rate, and repair costs are taken into account. Choosing a car that is cheaper to insure can help lower your premium.

Improve Your Driving Record

Maintaining a clean driving record with no accidents, tickets, or violations will help keep your insurance costs down. If you already have a violation on your record, waiting for it to age off your driving history will help reduce your premium over time.

Move to a Lower-Risk Area

The area you live in affects your insurance rates. Less densely populated areas with fewer cars, less crime, and a lower risk of accidents, theft, and collisions tend to have lower insurance premiums.

Pay Your Premium in Full

Some insurance companies offer a small discount if you pay your premium in full instead of spreading out payments.

By implementing these strategies, you can significantly reduce your auto insurance premium and save hundreds of dollars.

What is the difference between a quote and a premium?

A car insurance quote and a car insurance premium are two different things. A quote is an estimate of the cost of a policy, while a premium is the amount you pay for the policy.

A car insurance quote is an estimate of how much your car insurance will cost. It is based on the coverage package you select and the information you provide during the application process. Quotes are generally accurate, but the projected price may change once the insurance company checks your driving record and completes its underwriting process. It is important to be honest when answering questions about your driving record to get the most accurate quote.

A car insurance premium is the amount of money you pay to your insurance company in exchange for a policy. It is sometimes referred to as an insurance rate. The premium depends on numerous factors, including your selected coverages, driving record, location, and age. The higher the risk you are to insure, the higher your premium will be. For example, drivers with a poor driving record or young, inexperienced drivers will typically pay higher premiums.

The premium is usually paid in full or in installments, such as monthly or annually, depending on the policy term and the options offered by the insurance company. Paying in full can often result in a better rate and avoid installment and processing fees.

While a quote is an estimate of the cost of car insurance, the premium is the specific amount you agree to pay to have your policy in force. These numbers may be the same, but the insurance quote may change once the insurance company has more detailed information about your circumstances.

Frequently asked questions