Car Insurance Premiums: The Ultimate Guide

What exactly is a car insurance premium?

A car insurance premiums refer to the amount of money that you pay your car insurance service provider on a regular basis, usually every six months or every month in exchange for insurance protection.

As soon as you pay your premium, your insurer will pay for coverage outlined in the insurance policy such as Liability Insurance.

Every insurance company fixes their rates differently.

However, your premium is often based on specific details about you, the type of vehicle you want to insure and the type of coverage you want.

Car insurance premiums are different from your deductible which is the amount of money you’re required to pay before your coverage is activated.

Every type of coverage requires you to pay a premium and that goes beyond just car insurance.

Car Insurance Premiums: How They Are Calculated

Insurance service providers consider several different things before determining the specific premium to set for a car.

Every service provider’s aim is to balance the amount it requests as a premium with your possibility to request for an insurance payout anytime soon.

For instance, a 20-year old boy in a brand-new ride will be requested to pay a higher insurance premium compared to 55-year old man in an old Camry.

The fact is, the chances of the boy being involved in an accident is higher and the cost of repairing his car will be more expensive.  

Every car insurance service provider has its own formula – a regularly updated secret it uses in order to calculate premiums for motorists.

Here are some of the key information your insurance service provider may consider when determining your premium:

  • Your age, where you reside, and gender
  • You have to provide your credit and driving record. Your service provider will consider how responsible you have been with your spending as well as your driving record.
  • The type of car you want to insure. Newer and more expensive vehicles attract higher premiums.
  • The type of coverage you want also determine the amount you’ll have to pay for premium. You may be asked to pay more for premium if you decide to add optional coverage to your protection. However, reducing coverage such as limits to your liability portion will decrease it.
  • Also, your insurance service provider may offer you discounts for achieving certain goals such as attending a defensive driving course, or paying for an extra year of coverage.
  • Your deductible amount also affects your premium. In fact, lower your deductible, the higher your insurance premium and vice versa.
  • The number of drivers you have on your insurance policy can also affect your premium. The more drivers you have on it, the higher you’ll have to pay.

There are several other factors that are considered before a car insurance premium is set.

How to slash your car insurance premium

Some of the factors that are considered before setting insurance premiums are easy to change.

While others are difficult and some cannot be changed at all.

It is not advisable to relocate to a different city or change your age just because you intend to save money on car insurance.

However, you can customize your insurance policy to fit your needs and match your budget.

As long as you stay in line with the insurance requirements within your state lines.     

One of the key things you’ll have to consider when customizing your coverage:

Almost all insurance companies will show you a breakdown of your coverage.

This will enable you to make a rational decision about what will increase or lower your premium while considering all other factors that will balance your risk levels.

Eventually, every insurance service provider considers these factors differently.

So the easiest way to decrease your car insurance premium is to look around several different service providers to find out who will offer you the best rate for the type of protection you really need. 

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What’s the difference between a quote and a premium?

When an insurance company sends you a quote, consider it as an estimate of the amount of money the service provider will charge you for insurance.

To make it absolutely clear to you, insurance service providers don’t collect as much data when creating insurance quote as they do when writing an actual policy.

For instance, when you’re requesting for a quote you might be asked if your credit is excellent, OK or poor.

However, as soon as you actually sign up for protection your insurance service provider may decide to calculate your credit-based insurance (CBI) score while trying to figure out your premium.

You may end up with a better or worst quote compared to what was indicated in your quote.

How often do you have to pay your premium?

Your insurance service provider will determine how often you’re required to pay your premium.

Although the most common interval is monthly, twice a year or per annum.

Some insurance companies will give you the option of choosing when you want to pay.

In most cases you’d get a “paid-in -full” discount when you decide to pay more upfront.

Nonetheless, in some situations, you may be required to pay for your whole term up front.

This is often common if you’re considered an at-risk driver. For instance, if you have a record of a lapsed insurance or you require an SR-22.

Requesting for an entire payment is one of the ways insurance companies lower the risk of an at-risk driver.

When do car insurance premiums increase?

Most car insurance policies are sold in 12 or six months terms. Regardless of how long your term is, your insurance cost will remain the same for the agreed term.

Unless you decide to change your policy like buying a new vehicle or relocating to a new house.

As soon as your term is up, your insurance company will reconsider how much your premium should be.

Also, if you were caught overspeeding, your insurance rates might increase, same rule applies if you’reinvolved in an accident. Similarly, if you decide to go for a safe driving course, your rates might be slashed.

Insurance service providers are also regularly modifying their models for how much to request for insurance.

As such, it is possible that your premium will fluctuate without any changes in the way you drive or live.

Williams Oleije

Williams Oleije

Williams Oleije is an Inbound Marketer, and a pop culture enthusiast. He's an avid researcher about how digital media is transforming marketing in several industries.

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