If you’re buying car insurance for the first time, you may be running into a lot of new and confusing terms. You might be hearing about coverage, policies, deductibles, co-pays, liability, claims, and car insurance premiums.
Knowing your way around these terms can help you to make the smartest decision about the right car insurance for you. So what is a car insurance premium, and how do you know how much you’ll have to pay?
Read on to learn more about these costs and how you can save money while still getting the protection you need.
What Is a Premium?
In simplest terms, a car insurance premium is the amount of money you pay to your insurance company to maintain your policy. This is usually a consistent fee, although, as we’ll discuss, there are things that can change your premium costs. There are a lot of factors that go into calculating your personal car insurance premiums.
In a sense, your insurance premiums are going into a pool of money that the insurance company then uses to pay for claims. So rather than you having to pay $5,000 to fix your car, you and 100 other people pay the insurance company $50 a month. As long as no more than one person per month needs that claim money, everyone’s costs are covered by sharing that risk.
Premium vs. Deductible
In addition to premiums, you may hear some talk about your deductible on your insurance plan. Your insurance deductible is the amount of money you have to pay before your insurance company will start covering your costs. This is meant to make sure that pool of money from the premiums goes to help the people most in need.
Going back to our 100-person scenario, let’s say your neighbor Jack gets in a fender bender the same month as your car gets crushed by a tree. The cost for Jack’s expenses is only $200, but now there’s not enough money in the pool to cover the $10,000 you need to buy a new car. By charging you both deductibles, your insurance company can help ease your financial burden without emptying the coffers.
How Premiums Are Calculated
So how do insurance companies decide how much you need to pay them for a premium? In general, insurance premiums depend a great deal on your personal situation as a driver. Insurance companies base your premiums on how likely they think you are to wind up filing a claim, especially as the result of a car crash.
Your insurance companies will look at several factors when they’re calculating your premium. Age and gender play major roles, with younger adults and men tending to pay more for their premiums. Credit score, driving history, and your level of coverage can also make a big difference in your premium costs.
What Changes Your Premiums?
You may notice that your insurance premiums tend to fluctuate somewhat over time. On a regular basis, your insurance company will take a new look at you and reassess how likely they think you are to get in a crash. Going long periods of time between crashes, not getting tickets, getting older, and improving your credit score can all lower your premium costs.
If you get in a car crash, you’re going to notice a drastic increase in your premiums. Your insurance company now knows for sure that you’re a risky customer, and they want to protect their interests. Your premiums may also go up if your credit score drops or as you get further into your golden years.
How Often You Have to Pay Premiums
In general, car insurance premiums are calculated on a monthly basis, and many people choose to pay them each month. This reduces the amount of money you have to pay out of pocket all at one time. However, you may be able to save some money by paying more than one month at a time.
Many insurance companies offer the option to pay your premiums six months or even a year at a time. Since that money is guaranteed income, most companies will offer a per-month discount as an incentive to go this route. If you can afford the larger one-time expense, you can save yourself some money in the long run.
Average Premium Cost
So now the big question you’ve been wondering about: what is a good car insurance premium? Overall, Americans pay an average of $1,592 per year for car insurance. That means that if you’re paying monthly premiums, you should expect to pay about $133 on average.
However, keep in mind that premium costs can vary wildly depending on your driving history, your age, your location, and even your insurance company. If you’ve gotten a DUI in the past, you’ll be looking at more than $3,000 per year. If you choose to get liability insurance, rather than full coverage, you could pay just over $500 per year for coverage.
What Is a Car Insurance Premium? The Answer Explained
Car insurance premiums may seem complicated at first, especially since they keep changing. The important thing to remember is that the more reliable a driver you are, the lower your rates will be. You can also save some money on your insurance costs by paying for multiple months at a time.
If you’d like to find more answers to, “What is a car insurance premium?” check out the rest of our site at Official Car Insurance. We can help you to compare rates from the best car insurance companies in your area. Contact us today and discover more tips to lower your car insurance costs the easy way.