What Is Car Insurance Premium? Average Costs In 2022

car insurance premium
The Money Pages

You may be wondering, “What is an insurance premium?” whether you are getting your first policy or renewing an existing one. A car insurance premium is simply the money you pay to your insurance company in exchange for a policy. Car insurance premiums contain several variables, such as how frequently you pay them, how firms calculate them, and how your premium may alter over time. The insurance editorial team at Businessyield breaks down everything you need to know about your car insurance premium so you can better understand what you’re paying your insurance provider and why.

What is Car Insurance Premium?

A car insurance premium, often known as an insurance rate, is the cost of your motor insurance coverage. Depending on the insurance term offered by your organization, your total premium amount may cover you for six months or annually. In 2022, the national average premium for a full coverage policy is $1,771. It costs $545 per year for the bare minimum of coverage.

A premium is what keeps your insurance policy active. Your insurance company pledges to protect you and your vehicle in the event of an accident or other covered loss as long as you continue to pay your auto insurance premiums on time. If you fail to pay your premiums, the insurer has the ability to cancel your coverage after a set length of time. When your car insurance company cancels your policy, your coverage ends, leaving you with a lapse in coverage.

How are Car Insurance Premiums Determined?

Premiums for car insurance are extremely tailored. Providers employ a variety of elements to calculate your individual rate. Some of these elements are under your control, while others are not. Here are some of the factors that influence your car insurance premium:

#1. Your age and location

In most states, your age and where you live are two of the most important factors influencing your car insurance premium. Younger drivers, particularly teens, pay the highest car insurance premiums because they have the least driving experience. Car insurance rates differ greatly by state. The Department of Insurance in each state defines how individual criteria can be utilized to calculate vehicle insurance premiums. ZIP codes are important in states other than California and Michigan. Your insurance premiums may be higher than in other ZIP codes in your state if your ZIP code experiences more harsh weather, a high percentage of uninsured drivers, or a high accident rate.

#2. Your credit rating

When searching for a car insurance quote, your credit-based insurance score is quite crucial. Drivers with poor credit are considered high-risk by insurance providers, which means they are more likely to be involved in an accident or submit a claim. Credit scores are now prohibited as a rating factor for car insurance in four states: California, Hawaii, Massachusetts, and Michigan. Nonetheless, in many areas, boosting your credit score may help you get a lower premium.

#3. Your driving record and insurance claim history

When deciding your policy quote, insurers consider your driving record as well as your claims history. If you have a history of traffic offenses, it suggests that you are a risky driver. As a result, the insurance provider raises the cost of coverage. The same can be said for insurance claims. Filing an insurance claim increases your chances of filing another one in the future. Increasing your insurance rate is the insurance company’s way of minimizing risk and planning for future claims.

#4. Your automobile

Your automobile’s manufacture and model have a considerable impact on the amount of your car insurance premium. Insurance for a brand new car or a luxury SUV, for example, might be substantially more expensive than insurance on a 10-year-old used car. If something breaks or you get into an accident, high-value vehicles are more expensive to repair. If your car is totaled or stolen, your insurance provider must compensate you based on the car’s current market value. In general, the higher the worth of your car, the higher your insurance premium.

Cost of Car Insurance Premiums

Annual premium estimates from ten major national and regional insurance companies are provided in the table below. Depending on your circumstances, you may discover varying premiums. These figures exclude discounts and other schemes such as usage-based and pay-per-mile insurance.

Car Insurance ProviderAverage Monthly Cost EstimateFull Coverage Cost Estimate
USAA$88$1,054
Erie Insurance$103$1,238
Nationwide$107$1,281
Geico$109$1,308
Auto-Owners$111$1,337
State Farm$123$1,481
Progressive$134$1,611
Travelers$139$1,669
Allstate$174$2,088
Farmers$178$2,140

What is the Average Car Insurance Premium?

According to our analysis of annual rate data from Quadrant Information Services, the average car insurance premium in the United States in 2022 is $1,771 per year for full coverage. The average annual cost of minimal car insurance coverage is $545. However, keep in mind that car insurance prices are unique to each driver and might vary depending on a variety of circumstances, so your premium will most likely differ from the average. These considerations include coverage options, car type and model, driving history, and annual mileage. In some states, it may also include your credit score and age.

How to Save Money on Car Insurance

Although car insurance might be costly, there are numerous strategies to reduce your premium. Here are some ideas for lowering your car insurance premium:

#1. Use discounts

Almost every insurance provider provides discounts that can help you save money on your premium. Some reductions are more substantial than others. When shopping for car insurance, take note of the savings that each provider provides. Being a good student, being claim-free, participating in a telematics program, having an anti-theft system in your car, and bundling your insurance plans are all common savings.

#2. Pay your premium in full.

If you can afford the upfront expense, paying the annual cost of your premium in full can help you get a lower rate. Even if it is not promoted, most insurance providers provide this reduction. The actual savings vary by the insurance carrier, but they are often between 5 and 15%. If your insurance is excessively expensive, even a 5% savings may be useful.

#3. Examine your coverage.

There are numerous types of car insurance coverage available, and the more you have, the higher your insurance premium may be. Your insurance costs are also affected by the type of coverage you select. Most states demand a certain amount of liability insurance. You can also add comprehensive collision coverage, which will pay for actual damage to your car if it is damaged or totaled in a covered claim.

Although it is tempting when your insurance carrier provides optional coverage like glass repair or roadside assistance, choose wisely because the cost of those coverages can quickly mount up. Only pay for the types of coverage that you require, and check for duplicate coverage. For example, your credit card company may already provide roadside assistance.

What Is the Distinction Between an Insurance Quote and an Insurance Premium?

An insurance quote is an estimate of how much an insurance company will charge you for insurance. Insurance firms do not collect as much information when preparing an insurance quote as they do when drafting an actual policy in order to balance precision and simplicity.

For example, while getting a quote, you may be asked if your credit is fantastic, OK, or terrible. After you’ve signed up for insurance, your insurer may use your credit-based insurance (CBI) score to calculate your premium. Your rate may be higher or lower than what was mentioned in your quote.

PRO HINT:

Be truthful about your driving history when entering personal information for an insurance quote. Before offering a policy, the business you choose is likely to learn about any fender benders. If you fail to mention previous incidents, your car insurance premium could be much higher than the quoted price.

How Often Should I Pay My Insurance Premium?

Various insurance providers will require you to pay your auto insurance premium at various intervals. Monthly, twice a year, and annually are the most prevalent alternatives.

Many insurance providers allow you to select how frequently you want to pay—and you’ll usually get a “paid in full” discount if you pay more upfront.

However, you may be obliged to pay your entire term up front in some situations. This is especially prevalent if you’re considered an at-risk driver, such as if you previously let your insurance expire or need an SR-22. This is one method that insurance companies use to lower the risk of insuring high-risk drivers.

What is the Difference Between a Car Insurance Premium and a Deductible?

As previously stated, your car insurance premium is the sum you agree to pay for your coverage. Your car insurance deductible is the amount you agree to pay out of pocket for specific types of claims, often those filed under your comprehensive or collision policy.

Is Car Insurance Paid Monthly or Yearly?

Most insurance providers allow you to pay your car insurance premium monthly, bimonthly, or annually. If you pay for a six-month or annual coverage in full upfront, you may be eligible for a discount.

When Does Car Insurance Premium Increase?

Car insurance is typically sold in six- or twelve-month increments. Regardless of how long your term is, your insurance premiums will remain the same unless you make a modification to your policy, such as buying a new car or moving to a new house.

When your term expires, your insurance company will recalculate how much your premium should be. If you were in an accident or were caught speeding, your rates may rise; on the other hand, if you take a safe driving course, your premiums may fall.

Insurers are also continually altering their models for determining how much to charge for insurance, so your cost may fluctuate despite no changes in your driving status.

Conclusion

We covered all you need to know about car insurance premiums in this article.

If you’re looking for car insurance and want to get the best premium, compare car insurance quotes from several companies.

Car Insurance Premium FAQs

What does a 6 month premium mean?

A six-month car insurance premium is a type of insurance in which the car owner makes a single payment to cover their car for six months instead of the traditional 12-month policy plan.

Is it cheaper to pay your car insurance every 6 months?

Because you are paying for coverage over a shorter period of time, a six-month policy is usually less expensive than a 12-month policy. However, if you compare car insurance prices on a monthly basis, the difference between a six-month coverage and a 12-month policy may not be significant.

Why does car insurance drop at 25?

Car insurance normally becomes less expensive when you reach the age of 25. Your insurance provider will consider you less risky to insure as you gain driving experience and avoid accidents and claims, and your rates will decrease.

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