Understanding Auto Insurance Premiums: Cost And Coverage

An auto insurance premium is the amount of money you pay your insurance provider in exchange for coverage. The premium is usually paid at regular intervals, such as monthly, every six months, or annually. The cost of the premium depends on various factors, including the type of coverage, the insured's personal details, driving history, age, gender, credit score, and location. Insurance companies use these factors to assess the risk of the insured filing a claim and set the premium accordingly.

How often are auto insurance premiums paid?

Auto insurance premiums are usually paid monthly, every six months, or annually. However, some insurance companies offer three-month payment options for premiums.

Most insurance companies allow customers to pay in the following ways:

• By mailing a check
• Online through the insurer's website or smartphone app
• Automatically through autopay

Some insurers will also let you choose how often you'd like to pay and may offer a discount for paying more upfront. For example, you may be able to get a lower rate if you pay for a year of coverage upfront.

What factors influence the cost of auto insurance premiums?

Several factors influence the cost of auto insurance premiums. These factors are used by insurance companies to calculate the premium, which is the amount paid by the customer to the insurance company at regular intervals. The factors include:

• Personal characteristics: Age, gender, and credit history are among the most common personal factors that influence insurance premiums. Younger drivers, especially teenagers, are considered high-risk and tend to be charged higher premiums. Similarly, males often pay more than females.
• Driving record and history: A person's driving record, including accidents, speeding tickets, and claims history, is a significant determinant of their insurance premium. A history of accidents and violations indicates a risky driver, resulting in higher charges. However, insurance companies usually consider such records for a limited time, typically three to five years.
• Type and value of the car: The make, model, and value of a car influence insurance premiums. Newer, more expensive, and faster cars generally have higher premiums. This is because they are more costly to repair in case of damage. Additionally, cars with higher theft or crash rates, such as sports cars, may lead to higher insurance premiums.
• Location: The location of the insured person can impact their insurance premium. Urban areas often experience higher rates of accidents, vandalism, and theft, resulting in higher insurance rates compared to rural areas. Even within a state, rates may vary depending on the ZIP code.
• Coverage selections: The insurance premium increases with the number of coverage types and higher coverage limits selected by the customer. While purchasing only the minimum coverage required by the state may result in a lower premium, it might not offer sufficient financial protection in the event of an accident.
• Other drivers on the policy: Adding more drivers to the insurance policy can increase the premium, especially if young or inexperienced drivers are included.
• Credit score and history: Insurance companies use credit-based insurance scores to predict the likelihood of the insured person filing a claim. A poor credit history often leads to higher insurance rates. However, it is important to note that some states, such as California, Hawaii, and Massachusetts, prohibit the use of credit scores in determining insurance premiums.
• Mileage and driving behaviour: The frequency and distance of driving can impact the insurance premium. People who drive more or have longer daily commutes may have higher premiums.

How can auto insurance premiums be reduced?

A car insurance premium is the amount you pay your insurance company in exchange for insurance coverage. The national average premium for a full-coverage car insurance policy in 2024 is $2,314 per year, but this can vary depending on a number of factors.

Increase Your Deductible

If you increase your deductible (the amount you pay out of pocket before your insurance coverage kicks in), you can decrease your auto insurance payments. For example, increasing your deductible from $500 to $1,000 can bring your annual premiums down by 20 to 25 percent. However, make sure you have enough savings to cover your deductible in case of an accident.

Drop Collision and Comprehensive Insurance

If your car is older and has decreased in value, you may no longer need collision and comprehensive coverage. Collision insurance covers damage to your car in a crash, while comprehensive covers damage from acts of nature, vandalism, theft, and fire. Dropping these coverages can save you about $1,165 a year.

Take a Defensive Driving Course

Taking an approved defensive driving course can get you a discount on your insurance. For example, in New York, completing a state-approved course can get you a 10% discount on your insurance premium for three years.

Report Low Mileage

If you drive less than 10,000 miles a year, report your mileage to your insurance company. Most companies include annual mileage in their pricing, so lowering your miles can save you money. You may qualify for a low-mileage discount, saving you about $116 a year.

Bundle Your Policies

Combining your auto insurance with another type of insurance, such as homeowners or renters insurance, can often get you a discount. Bundling can save you around $348 a year, although this may vary depending on your situation.

Improve Your Credit Score

In most states, insurance companies use credit-based insurance scores to help determine your car insurance rates. Improving your credit score can lead to lower insurance rates, as it indicates you're more likely to make responsible decisions when driving.

Shop Around and Compare Quotes

Different insurance companies can offer significantly different rates for the same coverage. By comparing quotes from multiple insurers, you can find the best deal for your needs. Make sure to specify the same coverage types and policy limits for an accurate comparison.

Review Your Coverage

You may be paying for more coverage than you need. Consider dropping any unnecessary coverage or lowering your limits to reduce your premium. Just make sure you still meet the minimum insurance requirements in your state.

Take Advantage of Discounts

Insurance companies offer a variety of discounts that can lower your premium. These include good student discounts, safe driver discounts, multi-policy discounts, and more. Ask your insurance provider about any discounts you may qualify for.

Pay Your Premium in Full

Paying your premium in full, rather than in installments, can often get you a small discount. This can save you money and is worth considering if you can afford the lump sum.

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 how much an insurance company will charge for a policy. 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 company checks your driving record and completes its underwriting process.

On the other hand, a premium is the amount you pay your insurance company in exchange for coverage. It is the cost of your auto insurance policy, sometimes called an insurance rate. Your premium is usually based on details about you, the type of car you own, and the coverages you select. The premium may be slightly higher or lower than the initial quote you receive. This is because insurance companies gather more information that can impact your rate when you start the policy.

How do auto insurance premiums vary by state?

Auto insurance premiums vary significantly by state in the US. The national average rate for full-coverage car insurance is $1,895, but the state you reside in is one of the biggest factors influencing the price of your auto insurance premium.

Louisiana, Florida, California, Michigan, and Colorado are the most expensive states for car insurance. Maine, New Hampshire, Vermont, Ohio, and Idaho have the cheapest car insurance rates.

The average annual premium for full-coverage auto insurance ranges from $1,175 in Maine to $2,883 in Louisiana. New York has the highest average car insurance rates, with full-coverage rates of $8,232 per year or $686 per month. Wyoming has the lowest annual minimum-liability premium at $303 per year.

Several factors contribute to the variation in auto insurance premiums across states. These include:

• Population density: Urban drivers generally pay more for auto insurance than those in rural areas.
• Number of uninsured drivers: A higher number of uninsured drivers can lead to increased premiums.
• Weather conditions: States prone to severe weather events, such as hurricanes or floods, may have higher insurance rates.
• State insurance laws: Minimum insurance requirements and whether a state is a tort or no-fault state can impact premiums.
• Crime rates: Higher crime rates, including vehicle theft, can result in increased insurance costs.
• Road conditions and infrastructure: Poor road conditions and infrastructure can contribute to higher premiums.
• Cost of living: The cost of repairs and labour can be influenced by the local cost of living, affecting insurance rates.
• Number of licensed drivers: A higher number of licensed drivers can increase the frequency of accidents and claims, impacting premiums.

Frequently asked questions