What Is a Car Insurance Premium?

A car insurance premium is the amount you pay your insurance company to receive the coverage outlined in your policy. As long as you continue to pay your car insurance premium and your policy isn’t canceled or dropped, your insurance company may pay out claims for medical bills, car repairs and more after an accident, depending on the scope of your policy.

Keep reading for more information on how auto insurance premiums work and how to secure the best price for your needs and budget.

Key Takeaways Your car insurance premium is the amount you regularly pay to your insurance company to maintain coverage. A full coverage policy costs $2,312 per year on average. Factors like your age and gender, your car model, where you live and more can impact your car insurance costs. Bundling insurance policies, dropping unnecessary coverage types and shopping around can lower your car insurance premium or help you find a more affordable rate.

How Do Car Insurance Premiums Work?

Paying your car insurance premium ensures that your insurance company will pay for covered losses. You must continue to pay your premium even if you don’t get into a car accident during the coverage period. Doing so provides a safety net in case you ever get into an accident since it can keep you from having to cover medical or repair bills entirely out of pocket.

The costs of approved claims are shared among all policyholders, allowing you to receive a great amount of coverage compared to your premium payments. For example, you could pay a monthly premium of only $100 and receive upwards of $15,000 worth of coverage in return. Auto insurance works (and is profitable for the insurance company) when only a tiny portion of policyholders get into accidents and need to make claims on their insurance.

How Long Do Premiums for Car Insurance Last?

Car insurance policies typically last for six months or one year, depending on your insurance company.^[1] You will generally have to pay your car insurance premium once a month, every six months or once a year, with payment periods depending on your insurer and your policy details.^[2]

Paying in monthly installments may seem tempting, as it prevents you from giving up a large sum of money simultaneously. However, discounts are often available if you can afford to pay the full six-month or annual premium up front.

Average Rates for Car Insurance Premiums

As of March 2025, the average car insurance premium across the United States is $2,312 per year for a full coverage policy, which typically includes liability insurance, comprehensive insurance, collision insurance and potentially other coverage types required by law in your state. Meanwhile, the average cost of the minimum amount of coverage required in each state is $625 per year.^[3]

Keep in mind that, although full coverage is not legally mandatory, it is likely the minimum you will need to purchase if you are financing or leasing your car. As a result, your premium could exceed the national average noted above if you add other optional coverage types to your policy.

Why Do Car Insurance Premiums Change?

Your car insurance premium may change when you renew your policy at the end of your coverage period because your insurance company adjusts your premiums to reflect your current risk profile. For example, suppose you get into an accident and file an insurance claim for the first time. Your insurer may raise your rate for the following coverage period since it would now consider you more likely to file another claim.

In addition, other life changes can impact the cost of your policy. For example, your premium will likely go up when your child turns 16 and you add them to your policy, but it could go down if you sell your new car and purchase a used car instead.

Auto insurance rates can also fluctuate due to factors entirely outside your control, such as inflation.

How Are Car Insurance Premiums Calculated?

Car insurance rates are highly personalized, meaning insurance companies calculate the risk of insuring each individual. As a result, insurance premiums can vary significantly from person to person and company to company. Below are some of the factors that will most commonly influence your car insurance rates.

Personal Information

Personal characteristics, like age and gender, can play a part in determining insurance rates. For example, an inexperienced teenage driver will likely have a higher premium than a middle-aged driver since the teenager may be considered more likely to cause an accident. In addition, men tend to pay slightly higher rates than women because they are statistically more prone to costly accidents.^[4]

Some insurance companies will even evaluate the likelihood that you will file a claim using a credit-based insurance score. However, this is prohibited or otherwise regulated in California, Hawaii, Maryland, Massachusetts and Michigan.^[5] No insurance company can change your premium based on a protected status such as race, birthplace or religion.^[6]

Driving History

Insurance companies will often look at your driving record to see how likely you are to file a claim. For example, a high-risk driver responsible for multiple accidents in the past few years will typically have to pay a higher premium than someone who has never been in an accident.

Other driving behaviors may also influence your rates. For example, a low-mileage driver who works from home and rarely has to drive will likely pay less than someone who has to drive frequently as part of their job. In addition, some insurers will use telematics data, or technologically collected information about your driving habits, to determine the cost of your insurance policy.

For example, someone prone to speeding may have to pay a higher premium than a comparatively safe driver.

Age and Model of Your Car

Your insurance rates will also depend on the car you are insuring. Insurance companies generally pay out total losses at the car’s actual cash value (ACV), which is its replacement cost minus depreciation factors, like age or wear and tear. As a result, the older and less valuable your car is, the lower your premium should be.

A newer car may have built-in safety systems that could lead to discounted rates. At the same time, models with the most up-to-date technology may require higher repair bills in the event of an accident and are more likely to be totaled as a result. Your insurance company will consider all these factors when calculating your premium.

Deductible and Limits

Your deductible is the amount you agree to pay out of pocket before your insurance company starts chipping in toward covered losses. Selecting a higher deductible means your insurance company will be responsible for fewer costs whenever you get into an accident. As a result, a higher deductible will typically result in a lower premium.

Meanwhile, the limit is the maximum amount your insurance company will pay for a covered loss. For example, if you have a policy with a $25,000 limit for property damage liability coverage and cause an accident that results in $30,000 worth of damage, you would have to pay your deductible plus the last $5,000 out of pocket.

The higher your limits are, the more money your insurer will be responsible for paying in the event of an accident. So, while raising your limits will provide you with better coverage, it will also require you to pay higher premiums.

Number of Drivers

If your insurance company covers multiple drivers under one policy, the premium for that policy will naturally be higher than for a policy covering only one person. Even so, many insurance companies offer discounts on multi-car policies.

Location

Your location can impact your auto insurance rate in many ways. Each state has its own laws about how much car insurance you need and what methods insurance companies can use to calculate premiums. Furthermore, location-related information, like cost of living and auto repair prices, may also impact your rate.

In general, people who live in urban areas will pay higher rates than drivers from rural areas because they are more prone to theft and car accidents.^[4] You may also have to pay higher premiums if you live in a ZIP code with extreme weather or several uninsured drivers.

Coverage Types

The more types of car insurance your policy includes, the higher your premium will be. Most states require bodily injury and property damage liability coverage, while most auto lenders require a full coverage policy with comprehensive and collision coverage.

Depending on the state you live in, you may need to add other coverage types to your policy, such as uninsured and underinsured motorist coverage, personal injury protection and medical payments coverage. You may also have the option to add extra coverages that aren’t required by law in any state, like roadside assistance and gap insurance.

Car Insurance Premiums vs. Deductibles vs. Quotes

While they differ from premiums, quotes and deductibles are still relevant for understanding how much you will have to pay for auto insurance. Generally, you will receive a quote to estimate your payment before enrolling in a policy and regularly paying your premium. Meanwhile, your deductible would come into play after you start paying your premium and get into an accident.

	Description	Example
Quote	An estimate of how much your car insurance policy will cost	You insert preliminary personal information into an online car insurance calculator and are given an estimated rate of $100 a month
Premium	The actual amount you must pay after the insurance company has assessed your risk profile	An insurance underwriter fully examines your personal information and calculates that you should pay $120 a month for your auto insurance
Deductible	The amount you pay out of pocket toward covered losses before your insurance company will contribute any money	You cause $2,000 worth of damage to someone else’s car and then pay a $500 deductible, after which your insurance company covers the remaining $1,500

How Can You Lower Your Car Insurance Premium?

Some of the steps you can take to secure cheaper car insurance coverage include the following:

• Bundle your insurance policies: Many insurance companies offer discounted rates when you bundle your car insurance with another insurance product. For example, if you bundle your auto, life and homeowners insurance together, you may pay less than you would have if you purchased each insurance policy separately.
• Drop optional coverages: It is recommended that you drop comprehensive and collision coverage if their combined premiums add up to more than 10% of the value of your car.^[7] On average, dropping comprehensive and collision coverage in favor of a liability-exclusive car insurance policy could save you nearly $1,700 a year.^[3]
• Shop around: Different insurers weigh certain factors more heavily than others when determining insurance premiums, meaning it’s essential to shop around to find the best rate for your specific circumstances. You can compare auto insurance rates for free using an online insurance marketplace like SmartFinancial.