In this article, we at the MarketWatch Guides team will go over what car insurance premiums are, how they’re calculated, ways to lower your payments and more.
Our review team has researched and reviewed the best car insurance companies in the industry to bring you the top recommendations.
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What Is a Car Insurance Premium?
A car insurance premium is the amount of money you pay your auto insurance provider. Often used in reference to your car insurance bill itself, a premium is the amount you have to pay to keep your auto insurance coverage valid. Most insurers require that you pay your premium every six or 12 months, though many offer month-to-month payment plans too.
While auto insurance rates are determined using methods that vary from company to company, your auto insurance premium is generally based on personal details like the coverage you choose and the type of vehicle you drive. In exchange for paying your premium, the insurance company pays for coverages specified in your policy. The biggest examples would be collision and liability coverage.
Average Car Insurance Premium
Our team reviewed full coverage rate estimates for 35-year-old drivers with good credit and clean driving records from a variety of auto insurance companies. Overall, we found annual premiums from national insurers average $2,681 per year.
Car Insurance Premium Cost
The table below contains annual premium estimates from 10 major national and regional insurance providers. You may find different premiums depending on your situation. These estimates don’t factor in discounts or other programs like usage-based and pay-per-mile insurance.
| Car Insurance Provider | Average Monthly Cost | Average Annual Cost |
|---|---|---|
| USAA | $145 | $1,741 |
| Erie Insurance | $158 | $1,894 |
| Nationwide | $172 | $2,063 |
| Geico | $166 | $1,995 |
| Auto-Owners | $158 | $1,898 |
| State Farm | $212 | $2,544 |
| Progressive | $194 | $2,326 |
| Travelers | $141 | $1,692 |
| Allstate | $278 | $3,340 |
| Farmers | $291 | $3,495 |
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Car Insurance Premium Quotes
A car insurance quote — which is an estimate of how much you may pay for a policy — is not the same thing as a premium, which is the amount you actually end up paying.
That said, most car insurance quotes contain estimates regarding the premium you’ll be expected to pay if you purchase coverage. The premium may be slightly higher or lower than the initial quote you receive. This is because insurance companies get more information that can impact your rate when you start the policy. This could include things like your vehicle’s VIN number or a credit-based insurance score (if the company uses one).
How Are Car Insurance Premiums Calculated?
Because car insurance premiums are highly personalized and each provider calculates them differently, there is no standardized way to calculate car insurance premiums for every driver.
Factors That Affect Auto Insurance Premiums
Most providers take into account the following when setting rates for car insurance premiums:
| Factor | Impact on Car Insurance Premiums |
| Type of Car | The type and value of your vehicle can affect your car insurance rates. If your model of vehicle has high theft or crash rates (as do many sports cars) your insurance premium may be higher. Your vehicle’s value also determines the cost of comprehensive and collision coverage. New cars tend to be more expensive to insure than older vehicles. |
| Driving Record | If you have a poor driving record (speeding tickets, past accidents, DUI, traffic violations or other incidents) you will have higher rates for a set period of time, typically around three years after each violation. |
| Driving Habits | How often you drive can affect your premium rates. Many insurers offer usage-based discounts for drivers who don’t use their vehicles often. |
| ZIP Code | The crash and theft rates in your city can impact your premiums. Your state also matters, as each state has different insurance regulations and required minimum coverage. |
| Age | Younger drivers typically pay more for auto insurance. The highest rates are assigned to drivers between the ages of 16 and 25. Experienced drivers receive lower rates until about age 55, when rates rise slightly again. |
| Gender Listed on Your License | In some states, people listed as men are charged higher premiums than those listed as women or vice versa. In California, Hawaii, Massachusetts, Michigan, Montana, North Carolina and Pennsylvania, insurers are not allowed to base insurance premiums on gender. |
| Credit History | In some states, having a better credit score means better auto insurance rates. In California, Hawaii, Massachusetts and Michigan, insurers are not allowed to set rates based on credit scores. In states that do, drivers with poor credit tend to pay more for coverage. |
| Marital Status | Married drivers sometimes receive lower auto insurance rates than single drivers. |
| Coverage Level | You’ll pay the lowest car insurance premium if you only carry your state’s minimum required coverage. Purchasing higher coverage limits or more exhaustive policies will increase your premium. |
| Deductible | Collision and comprehensive insurance policies typically include a deductible. Choosing a higher deductible will result in a lower premium. |
| Discounts | The discounts for which you are eligible affect your rate. Common car insurance discounts include a homeowner’s discount, military discount, multiple policy discount and pay-in-full discount. |
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Car Insurance Changes
Insurance premiums typically change slightly every six months or every 12 months, depending on the plan and company you choose. Your premiums contribute to a regional insurance pool that is affected by state regulations and total claims.
Let’s say hurricane season damages more cars in your state than normal one year. You may see rates increase during the next period to compensate for the increased insurance claims. On the other hand, if your state introduces new legislation to control the cost of car insurance, you may see a lower rate in your next policy period.
We recently surveyed 2,000 car insurance customers about their experiences. Overall, 36% experienced a rate increase without an obvious cause. The bottom line is that you should expect your premiums to change over time.
Why Do Car Insurance Premiums Increase?
In some cases, you may find that your car insurance premium increases when you renew your coverage. This typically happens after you file a claim where you were at fault for a collision. It can also happen if you add another driver to your car insurance policy or if you receive a speeding ticket.
How To Lower Car Insurance Premiums
If you’re trying to lower your car insurance premium, there are several strategies you can use:
- Drop unnecessary coverage: Reducing your coverage will reduce your premium. With older vehicles, it may not be worth maintaining comprehensive and collision insurance policies. The general rule of thumb is to reduce these types of coverage when your annual premium exceeds 10% of your vehicle’s total value. Keep in mind that you will need to maintain your state’s minimum insurance requirements to drive legally, so you shouldn’t reduce your bodily injury or property damage liability insurance or other required policies.
- Compare rates: Shop around and compare auto insurance quotes from multiple providers. You may find that you can save a significant amount by switching insurers.
- Take a driver safety course: Many insurers offer discounts for completing a state-approved driver safety program. These courses are typically six or eight hours, and some states mandate that insurers offer discounts if you complete one.
- Choose usage-based insurance, if it could benefit you: Several insurers offer usage-based discount programs. These are typically run through an app that tracks things like your braking distance, average speed and driving times.
- Bundle your policies: If you have homeowners’ or renters insurance, you can usually get car insurance discounts by purchasing both home and auto policies from the same insurer.
- Pay in advance: Paying your car insurance premium upfront results in a discount with the majority of insurers.
Car Insurance Premium Payment
How you pay your car insurance premium depends on your provider, but the majority of companies allow customers to pay in the following ways:
- By mailing in a check
- Online through the insurer’s website
- Online through the insurer’s smartphone app
- Automatically by setting up autopay
Paying online, you’ll have the option to enter your credit or debit card information or link your checking account for a funds transfer. If your vehicle is insured by a company that offers banking services, like USAA or State Farm, your insurance and checking account can be accessed using the same login information.
Most insurers require that you pay your premium every six or 12 months, though many offer month-to-month payment plans too. Most insurers allow you to set up automatic payments so the money is drafted out of your bank account each month and you never miss a payment. You might be able to get a premium discount if you pay your entire annual premium upfront or enroll in autopay.
How Often Do You Pay Car Insurance Premiums?
Payments are typically made on a regular basis, which can range from monthly to yearly increments, with many companies offering three-month and six-month payment options for premiums.
How To Pay Car Insurance Premiums Online
Paying online, you’ll have the option to enter your credit or debit card information or link your checking account for a funds transfer. If your vehicle is insured by a company that offers banking services, like USAA or State Farm, your insurance and checking account can be accessed using the same login information.
Auto Insurance Premiums: The Bottom Line
In this article, we went over everything you need to know about car insurance premiums. Below, you can find our picks for the best car insurance companies:
Car Insurance Companies With Low Premiums
If you’re looking for car insurance and want to find the lowest premium, be sure to compare car insurance quotes from several providers. We recommend checking out two of our highest-rated providers: Geico and USAA.
Geico: Best for Budget-Conscious Drivers
We named Geico our Best for Budget-Conscious Drivers because our cost research found Geico to be one of the lowest-cost providers in the country on average for many drivers. The company is one of our top providers since it has astrong industry reputation, positive customer service ratings across the country and comprehensive coverage options.
Geico discount options include:
- Multi-policy discount
- Multi-vehicle discount
- Good driver discount
- Defensive driving discount
- Good student discount
- Driver’s ed discount
- Military discount
- Emergency deployment discount
- Federal employee discount
- New vehicle discount
- Vehicle safety feature discounts
- Anti-theft device discount
Read more: Geico Insurance Review
USAA: Best for Military Members
Like Geico, USAA has a strong customer reputation and cheap car insurance coverage. The reason that it did not top our list of the best insurers is that coverage is not available for every driver. In order to qualify for a policy with USAA, drivers must be a member of the U.S. armed services or have a direct family member (parent, grandparent, or spouse) with a USAA account.
USAA discount options include:
- Family discount
- Loyalty discount
- Multi-vehicle discount
- Safe driver discount
- Defensive driving discount
- Good student discount
- Driver training discount
- New vehicle discount
- Low annual mileage discount
- Vehicle storage discount
- Pay-in-full discount
Read more with our USAA Insurance Review, or compare USAA and Geico head-to-head by reading our USAA vs. Geico review.
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Auto Insurance Premium: FAQ
Below are some frequently asked questions about car insurance premiums:
Car insurance premiums are calculated differently by every insurer. The following factors are often taken into account when calculating auto insurance premiums: vehicle, driving history, driving habits, location, age, gender, credit score and marital status.
As an example, your car insurance premium may be $900 per year. You can pay this upfront or pay about $75 per month (you may get a slight discount for paying upfront). If you stop paying your premium, your car insurance will lapse.
A six-month total policy premium means that your selected car insurance coverage will be effective for six months after paying your premium. After six months, your insurance rate may be recalculated by your provider and is subject to change.
An insurance premium is simply the price you pay to have the insurance plan for a set period of time. In auto insurance, you usually purchase plans in six- or twelve-month increments. You can either pay the premium upfront for the period or make monthly payments.
The price of a full coverage auto insurance policy varies from driver to driver. According to our rate estimates, affordable coverage for 35-year-old drivers with good credit and good driving records costs $2,681 per year on average. To research insurance costs for yourself, reach out for free car insurance quotes.
Our Methodology
Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best car insurance companies. We collected data on dozens of auto insurance providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the insurers that scored the most points topping the list.
Here are the factors our ratings take into account:
- Cost: Auto insurance rate estimates generated by Quadrant Information Services and discount opportunities were both taken into consideration.
- Coverage: Companies that offer a variety of choices for insurance coverage are more likely to meet consumer needs.
- Reputation and experience: Our research team considered market share, ratings from industry experts and years in business when giving this score.
- Availability: Auto insurance companies with greater state availability and few eligibility requirements scored highest in this category.
- Customer experience: This score is based on volume of complaints reported by the NAIC and customer satisfaction ratings reported by J.D. Power. We also considered the responsiveness, friendliness and helpfulness of each insurance company’s customer service team based on our own shopper analysis.
Our credentials:
- 800 hours researched
- 45 companies reviewed
- 8,500+ consumers surveyed
*Data accurate at time of publication.
If you have feedback or questions about this article, please email the MarketWatch Guides team at editors@marketwatchguides.com.
