What Is a Car Insurance Premium?

Car insurance companies use many different factors to determine your premium, which is what you pay every month for your insurance. It’s common to pay for your policy in monthly installments, though insurers also allow you to pay in a lump sum — an up-front annual payment — which may qualify you for a discount.

Premiums vary by driver. While insurance companies generally take into account your driving history, age, location, and more, the policy type you choose or the vehicle you drive can also influence your premium. Learn more about car insurance premiums and how to save money when shopping for car insurance.

Understanding car insurance premiums

​​Your car insurance premium equals the amount you regularly pay for your coverage. Car insurance reduces your financial risk in the event of an accident or some other type of damage to your car.

You can avoid potentially larger financial costs later by paying a smaller amount regularly, as the insurance company will cover your costs. For instance, if you get in an accident or some other covered damage occurs, the insurer covers some or all of the cost depending on the type and levels of coverage you’ve purchased.

It’s important that you pay your monthly premium on time. Otherwise, you’ll face a lapse in coverage. If you miss multiple payments, your insurer can cancel your car insurance policy. Depending on the car insurance company and your policy, you may pay premiums monthly, semiannually, or annually. You can usually choose to send in payments or have them automatically deducted from your bank account.

Premium vs. deductible

A deductible is the out-of-pocket cost you pay for covered damages before your insurance coverage kicks in. A premium is the amount your insurance company charges in exchange for protecting you and your car from financial damage in case of a covered event.

While deductibles only apply when you file a claim, you have to pay your premium on an ongoing basis to maintain coverage. Your premiums don’t count as part of your car insurance deductible.^[1]

If you have coverage with a $250 deductible and have an accident that results in $8,000 in covered damages, you’ll pay $250 as your share of the cost. The insurance company pays the remaining $7,750.

Factors that influence your premium

To calculate car insurance rates, insurers use different factors to determine your risk levels for having an accident and filing claims. If you demonstrate a higher risk, you’ll likely pay a higher premium.^[2]

Learn more in the following sections about various rating factors — driver, policy, and vehicle factors — that an insurer generally considers when determining your monthly premium.

Driver factors

Your insurance company may consider your location and age when determining your monthly rate. Here are a few more driving factors to keep in mind:

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  Age

  Teenagers and drivers younger than 25 pose the highest risks of financial loss to car insurance companies.^[3] Most insurers offer a good student discount for drivers in school who get good grades, but younger drivers still pay higher rates.

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  Driving record

  An insurer typically tracks your driving record, including traffic violations, accidents, and other issues. If you have frequent driving infractions, you’ll face higher insurance premiums. Good driving habits can have a significant effect on keeping your rates low, sometimes through a good driver discount.

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  Location

  Where you live makes a difference, down to your ZIP code. The average car insurance premium varies by state, in part based on overall accident and loss statistics. Weather, climate, population density, and minimum insurance requirements may also affect variations by state. Additionally, urban, suburban, and rural areas tend to have different crime and theft statistics.

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  Credit history

  Insurers look at your credit history when setting your insurance rate, although some states prohibit this practice. Drivers with poor credit generally pay higher rates than drivers with good credit.

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  Driving experience

  Experienced drivers pay less for auto coverage than new drivers because more experience leads to safer driving. Gender also affects premium costs, as men engage in risky driving practices, like speeding and forgoing a seat belt, more frequently than women.^[4]

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  Vehicle usage

  The primary purpose of the car can also factor into your insurance, including how often you drive it. If you drive your car to work every day, insurers might view you as more likely to get in an accident. Urban drivers may also receive higher rates because they drive more in congested city traffic. On the contrary, low-mileage drivers often earn discounts.

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  Other drivers

  You’ll have to list any other drivers who plan to use your car. The ages, genders, and driving records of other drivers can affect your car insurance rate.

Policy factors

Learn more about how the policy type you choose influences your premium cost:

• Coverage types: The two main types of car insurance are liability only and full-coverage car insurance. Liability-only coverage is cheaper than full coverage, as it doesn’t offer much financial protection for drivers, while full-coverage insurance includes additional coverage in addition to liability.

• Coverage limits: Most states require a minimum coverage amount for liability insurance, but you can always choose a higher limit. Keep in mind that selecting a higher coverage amount results in higher premiums.^[5]

• Deductible amount: The deductible amount that you choose typically affects how much you pay for insurance. If you raise your deductible, you’ll cover more out-of-pocket costs, which lowers your car insurance premium. On the other hand, reducing your deductible means higher rates.

• Optional endorsements: If you want to add more coverage to your policy, you may purchase add-ons that offer additional protection and best suit your situation. They vary from roadside assistance to accidental forgiveness, gap insurance, and more.

• Discounts: Drivers who insure multiple vehicles on their policy or purchase their car and home insurance from the same insurance company are eligible for a variety of discount opportunities. Ask your insurer if you qualify for any discounts.

Vehicle factors

The list below highlights how vehicle factors can also influence your monthly premium:

• Vehicle type: The type of vehicle you drive can affect your monthly premium. If you drive a high-performance car that’s more expensive to repair or that you may drive more aggressively, you’ll likely see higher rates compared to a low-value or older vehicle. High-value cars can also be more expensive to replace.

• Safety features: You can get a discount on your car insurance premium if you add safety features that would reduce your chances of having an accident or facing severe injury. For example, having or installing anti-lock brakes, airbags, and anti-theft systems can earn you a discount.

• Vehicle age: Your premium can vary depending on the age of your vehicle. Drivers with an older car typically have cheaper rates, as the older the car, the less it’ll cost to repair or replace.

• Theft risk: Insurers may increase your premium due to the likelihood of you having your vehicle stolen, as you’re more at risk of filing a claim. But many insurance companies offer discounts if you take precautions and install anti-theft devices that deter car break-ins.

Average cost of car insurance

The national monthly average cost for liability-only and full-coverage car insurance is $101 and $179, respectively. While many states saw a decrease in premium cost in the first half of 2025, Insurify analysts predict that rates may increase by 4% to 7% by the end of 2025.

A full-coverage policy with liability, collision, and comprehensive coverages will cost more than liability-only coverage. If paying for full-coverage insurance to have your car repaired or replaced in an accident would cost more than the value of your car, you should consider trimming your coverage.

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How to save on your insurance premium

You have multiple ways to save money on your car insurance premium:

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  Ask about discounts

  Many insurers have discount programs. Find out whether you qualify for good student, good driver, or other discounts. Some companies offer discounts for belonging to certain organizations or for being a veteran.

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  Bundle policies

  Use the same company for your car insurance that you use for your home, renters, or life insurance to get a discount. You can also put multiple vehicles on your policy for a discount.

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  Increase your deductible

  Opting for a high-deductible policy can result in lower monthly premiums. But make sure you can afford the out-of-pocket costs if you file a claim.

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  Take a defensive driving course

  If you complete a defensive driving course, you can earn a discount of around 10% on your monthly premium.

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  Shop around

  Compare different quotes to get an idea of costs with various insurers. Insurance companies review your information and coverage needs to generate your premium cost.

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