What Is a Car Insurance Premium?

What Is a Car Insurance Premium?

A car insurance premium is the amount you pay your auto insurer to protect you and your car. An insurance company determines this amount based on its best guess about your potential to make a claim for reimbursement or to have someone else make a claim due to you causing an accident. 

The premium depends on numerous factors, including your selected coverages, driving record, location, and age. You might pay your car insurance premium monthly, every six months, or once a year, depending on your chosen payment plan and how much time your policy covers.

How Are Car Insurance Premiums Calculated?

The higher the risk you are to insure, the higher your premium. If you fall into the category of a driver who might make any claim—based on your age, driving record, type of car, claims history, car theft in your city, or other factors—the insurance company could charge you a higher premium or decline to cover you. 

Drivers paying the highest premiums are single males under age 25 because statistics about millions of drivers demonstrate they have the highest accident rates. In contrast, a middle-aged person without a history of claims, accidents, or tickets will likely pay a lower premium. Statistics indicate that this person is less likely to make a claim.

But premiums are also calculated based on a broader increase in claims payment costs. These include rising, inflation-based costs of covering auto repair, theft, fraud, lawsuits, administrative expenses, and finally, medical treatment for those in auto accidents.

Car Insurance Premium Factors

Each state requires insurers to disclose factors used to calculate premiums. Here’s a closer look at some of the most prevalent factors for determining premiums.

• Driving record: Insurers look at the last three to five years, including accidents and moving traffic violations.
• Household status: Singles may pay more for insurance because insurers note that married couples have fewer accidents overall. However, any driver with a poor driving record in your household could affect your rates.
• Claims history: This is based on your CLUE report, which details seven years of personal property and auto claims.
• Type of vehicle: Owners of newer cars, electric vehicles, sports cars, and high-performance cars may pay more due to risk or costs for repair. 
• Location or ZIP code: People living in areas with higher rates of accidents, theft, or vandalism may pay more.
• Prior insurance coverage: If your coverage lapsed, you could pay more.
• Discount eligibility: You could pay less by bundling your home and auto insurance, taking defensive driving courses, or having auto safety devices like airbags.

In most states, the following are considered. But some or all of these factors can’t affect your premium in states that include California, Georgia, Hawaii, Massachusetts, Montana, North Carolina, New York, and Pennsylvania, according to researchers at insurance website The Zebra. 

• Your credit history: While some states forbid your credit score from influencing your insurance premium, it’s allowed in other states. 
• Gender: Males typically pay higher premiums than females, but gender isn’t considered in some states. 
• Age: People under 25 typically pay the most for auto insurance, but some states don’t consider age-related factors. 
• Education, occupation, and employment status: You might pay less for insurance if you’re employed and college-educated, but several states don’t allow this factor to be considered. 

Your state sets a minimum amount for liability insurance that covers damage to other people and vehicles you’re responsible for causing. Some premium cost factors depend on the coverage you buy.

• Additional coverages: You can add coverage to protect your vehicle or passengers or if an uninsured motorist damages your car. 
• Liability coverage limits: You will choose these limits, which could lead to higher premiums.
• Deductible levels: You can decide how high your deductible is for comprehensive and collision coverages.

How Much Is a Car Insurance Premium in 2024?

The national yearly average for car insurance premiums in 2024 was about $1,759, or $147 per month. Here are some other national 2024 averages based on coverages and age groups; these come from The Zebra.