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What is a car insurance premium?
Understand how much you’ll pay and what to compare while shopping for insurance.
Your premium is related to how much you pay for car insurance. But it’s helpful to know important factors like what a premium does, how it’s related to other car insurance terms and what you can expect to pay.
Car insurance premiums explained
Your premium is the amount you pay upfront for your insurance in exchange for protection against certain situations.
In exchange for paying the premium, your insurer promises to help pay for damages in case an accident or damage occurs. You can receive help with paying for car repairs, replacement, damaged property and medical bills after an accident.
How much is a car insurance premium?
The average premium is around $1,300 per year. But, premiums are based on personal factors like your age, driving record, job and education and credit history. For insurers, these items are indicators of what risk can be expected depending on who’s behind the wheel.
Personal characteristics aside — coverage, type of car, location and annual mileage are other ways a company can look at driving conditions and how costly a claim might be to determine risk and premium amount.
How do I compare car insurance premiums?
There’s more to looking at car insurance than comparing dollar signs. Pay attention to other characteristics that tell the true value of the policy. Those include:
- Amount of coverage. How much accident damage is covered or how much you pay for your deductible factors into your out-of-pocket costs. The cheapest company might limit your coverage to $20,000 worth of damage, while another slightly more expensive one allows $50,000. You may want to compare apples to apples, using similar coverage when getting quotes from different companies.
- Claims satisfaction. Find out how satisfied current customers are with their payouts after an accident. Low ratings might mean you’ll have customer service problems if you do get into an accident yourself.
- Discounts offered. An insurance provider might seem pricey until you find out how many discounts you’ll receive. Make sure the final cost is still the best value compared to other companies.
- Premium increases. Your driving habits, as well as factors like inflation or widespread increase in accidents, can spike your premium. Shopping around every year or so can help you get the best value possible.
- Trusted brands. Consider companies that have strong financial ratings from AM Best or the Better Business Bureau. You could opt for regional or nationwide brands that have more customers, which may mean more stability.
Understanding basic car insurance definitions
When buying car insurance, you’ll likely come across several car insurance terms you may not understand, like policy, premium, quote or deductible. Knowing the language could help you get more protection at a better value.
How does a car insurance policy affect my premiums?
Your insurance policy is a contract between you and your insurance company that details what the insurer will protect you against, what you’ll pay in exchange and any other terms.
Your premium is the payment for this policy and is affected by the type of policy you choose, like standard, temporary or luxury car insurance. But it’s also affected by the amount of coverage you have, like collision damage or car replacement cost coverage.
What’s the difference between a car insurance premium and a quote?
A quote differs from your premium only in that it refers to where you are in the insurance shopping process. A quote is essentially an estimate of your premium — helping you see how much you’ll pay if you sign up with that insurance company.
Your premium, on the other hand, is the amount you’re expected to pay after you sign up for a policy. The premium will sometimes be a different number than the quote since the insurance company uses a more detailed calculation than a quote to get the final cost.
Insurance companies determine this amount by researching your driving history, demographics and kind of car you drive, among other factors.
Compare car insurance premiums
What’s the difference between a premium and a deductible?
While your premium is the upfront cost that you pay for protecting your car, the deductible is the amount you pay after an accident happens.
The deductible is your share of the cost for the accident damage, and you agree on how much the deductible is when you first purchase your policy. Once you pay the deductible, your insurance company takes on any expenses that go above that amount.
Common deductible amounts are $250, $500 or $1,000. The higher your deductible is, the less you pay for your premium — but the more you’ll pay in an accident.
Compare premium, quote and deductible
|What it is||What it does||When you pay|
|Policy||Contract between you and the insurance company||Lists and explains agreements, such as situations you’re protected for and how much to pay||N/A|
|Premium||The amount you pay to buy a car insurance policy||Fulfills your side of the contract so you’re protected in case of an accident||When you sign up for your policy, usually every 6 or 12 months|
|Quote||The amount an insurance company predicts you’ll pay for a policy||Allows you to see what you could pay in advance||Quotes are free. You’ll only pay your premium if you start a policy.|
|Deductible||The amount you agree to pay for accident damage||It’s your share of accident expenses alongside your insurance company||After an accident, but before your insurance kicks in|
Your insurer pays for expenses after this amount is covered
Your car insurance premium is the amount you pay to get protection from car accidents, and it’s affected by factors like amount of coverage and high or low deductibles. To get the best value, compare the total cost with the amount of coverage and number of discounts across several providers.
Common questions about car insurance premiums
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