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What are auto insurance premiums?

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There are a lot of terms in the insurance world you need to understand to use your policy to its maximum potential. One of those terms is the word “premium”. Whether you have no understanding of this word or have a modest understanding of it, you’ll likely learn a few things below.

Here’s everything you need to know about auto insurance premiums.  

What are car insurance premiums?

What is a premium? In the car insurance industry, premium is a word insurance companies use instead of payment. There are a few differences, but the basic car insurance premium definition is that it is the cost you pay for insurance coverage.

The total cost of a car insurance premium is based on a variety of factors. These include:

  • Type of coverage: Do you need liability, comprehensive or collision? Are you looking for underinsured or uninsured motorist coverage? The coverage type greatly influences the cost of your premium.  
  • Policy limits: Do you want the bare minimum liability requirements set forth by your state or do you want more?
  • Deductible amount: Every insurance provider requires a deductible. The more you pay with a deductible, the less you’ll pay for your monthly premium and vice versa.
  • Type of car: A newer car will cost more to replace, meaning you’ll pay a higher premium.
  • Age: Younger drivers typically pay more than older, more experienced drivers.
  • Gender: Men are considered to be riskier drivers than women and pay more for insurance as a result.
  • Credit score: A low credit score has been linked to a higher frequency of claims. Improve your credit score to pay less for insurance. 
  • Where you live: If you live in a neighborhood with a high crime rate or you have a daily commute to a busy city, your insurer will consider you a higher risk.   
  • Other drivers on policy: Want to add your spouse or teenager to your policy? The extra coverage will increase the cost of your premium.
  • Personal driving history: If you’re frequently in accidents or you have a history of speeding, your insurance provider will charge you more for coverage.   

Each provider weighs the importance of each factor differently. You might receive much different quotes for auto insurance premiums from each company. 

What affects auto insurance premiums?

Many factors can either increase or decrease your insurance premium.

Here are some of the most common factors that will either increase or decrease what you pay to insure your car.

Factors that increase your premium

  • Aging 
  • Claim frequency in your neighborhood
  • Filing multiple claims
  • Gaps in coverage
  • Having a claim against you
  • Higher repair costs
  • Industry changes
  • Lowering your deductible
  • Population increase in your area
  • Traffic violations

Factors that decrease your premium

  • Adding safety features to your car, such as a security system, adaptive headlights, blind-spot detection or forward collision warning system
  • Discounts
  • Improving your credit score
  • Increasing your deductible
  • Quote shopping— comparing premium costs between companies
  • Safe driving (going years without filing a claim)

How often do I pay my auto insurance premium?

How much you’ll pay for insurance is also affected by how often you pay. Most insurance companies offer monthly, bi-annual and annual options. Pay in full (meaning you pay an entire year at once), and you’ll most likely receive a discount.

To pay your premium, you can go to the company’s website or its mobile app.  Other options include:

  • Signing up for automatic payments with either your credit or debit card
  • Signing up for automatic payments using your bank account
  • Doing a one-time charge either with your credit or debit card
  • Paying in person at a local office
  • Paying over the phone 
  • Mailing in your payment with a check or money order

Ask your insurance company which versions of payment they accept. Not all will accept every kind of payment.

What happens if I don’t pay my auto insurance premiums?

Should you be unable to pay your auto insurance premium or you forget, your insurance policy will lapse, meaning you won’t have coverage. Proof of insurance is required in all states, so if you get caught, you may get fined. The worst case scenario is if you get into an accident. Should that happen and you are found at fault, you will be expected to pay medical costs and repair costs out of pocket. If you are unable to, you will most likely be taken to court.

Another possibility is that your insurance provider will cancel your policy without the possibility of it being renewed, which in turn could cause your license to be suspended. In some states, this information is required to be reported to the department of motor vehicles. Don’t assume your provider and the DMV aren’t in communication because they likely are.

If you are able to, always sign up for automatic payments to ensure there isn’t a lapse in coverage.

If you signed up for biannual or annual payments and these payments are proving too much for you budget, ask for the monthly option. Even though you don’t get a discount for paying month to month, the payment amounts are a lot easier to handle in smaller chunks.

If you want to switch providers, have redundant coverage rather than no coverage if you need an overlap. When you cancel with your insurance provider, tell them the exact day you want coverage to terminate, and make sure this date coincides with or overlaps with the day your new coverage begins.

The takeaway

  • Many things influence what you pay for auto insurance. Some factors are in your control while others are not.
  • Your policy can go up or down year to year.
  • You can pay your auto insurance month to month, bi-annually or annually.
  • Look into discount opportunities with your insurer to lower your premium.
  • Always pay your premium to avoid lapses in coverage.

So, what is an auto insurance premium? It’s what you pay to insure your car.

If you feel your premium is too expensive, shop around or ask about discounts with your provider. Many discount options are easy to achieve and require little effort on your part.

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