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Car insurance provides crucial protections for motorists in the event of an accident or if their cars are stolen. Car insurance isn’t just a good idea — it’s mandated by law in 48 states and Washington, D.C. To pay for that protection, you are charged a car insurance premium.

The premium you pay for car insurance will vary depending on several factors. Here’s what you need to know about how car insurance premiums are calculated to help you find the best deal. We’ll also explore ways you can save on your premium to keep more money in your pocket.

Learn more: How does car insurance work? The basics explained.

What is a car insurance premium?

A car insurance premium is the amount you pay an insurance provider for a policy. Premiums are typically paid monthly, semi-annually, or annually. Although monthly payments offer the convenience of paying as you go, premiums that are paid semi-annually or annually usually cost less overall. Insurance providers often give discounts to policyholders who pay months in advance because it decreases the risk of late payments and cancellations.

A car insurance policy will have a deductible, which is different from the premium. A deductible is the amount you must pay out-of-pocket before a policy will cover a claim.

For example, if your vehicle is involved in an accident, you may be required to pay a $500 deductible before your policy will cover the remaining repair costs. Policies with higher deductibles are typically more affordable because the insurance company will pay less if you file a claim. A higher deductible also reduces the number of smaller claims made.

How coverage affects car insurance premiums

It’s easy to compare sticker prices when you are car shopping. However, what you pay for your car insurance premium isn’t as straightforward because different factors can affect the cost — like your driving record, location, and credit score. The specific coverage you need — liability, personal injury protection, comprehensive, or collision — also plays a major role in the cost.

Car insurance coverage typically starts with the minimum required by your state, with additional coverage added for extra protection. For example, if your state requires liability coverage, you could also add comprehensive and collision to ensure you're protected from damage to your vehicle, vandalism, theft, and other liabilities.

Learn more: Most common types of car insurance explained

Liability

Liability coverage is usually the most affordable because it only covers bodily injury or property damage that you cause to others. It does not cover damage to your own vehicle. This type of coverage is required in 48 states. Only New Hampshire and Virginia do not require coverage.

Personal injury protection

Personal injury protection (PIP) coverage is also known as “no-fault” insurance and is required in 12 states. It covers medical and other costs for you and your passengers, regardless of who is at fault in an accident. It does not cover damage to vehicles, property, or injuries to drivers in other vehicles.

Comprehensive

Comprehensive insurance covers certain types of damage, such as vandalism, theft, fire, hail, glass, and hitting an animal. However, it does not cover damage from a car accident or any other type of collision, medical expenses, or personal belongings.

Collision

Collision insurance can be the most expensive because it pays for damage to your own vehicle after an accident, regardless of who is at fault. It does not cover non-collision damage, medical expenses, or damage to another driver's vehicle.

How your location affects car insurance premiums

One of the biggest factors affecting your car insurance premium is where you live due to variations in state laws, regulations, driving conditions, and other influences. Each state has its own minimum coverage requirement, and some mandate additional protections, like uninsured motorist coverage or PIP, which increases your premium.

Car insurance rates vary significantly by state. For example, North Carolina offers some of the lowest rates, with one average annual premium estimate of $1,148, while Florida ranks among the most expensive, with one average annual premium estimate of $2,923 per year. That’s a staggering difference of over $1,700 based solely on ZIP code.

Learn more: How does your ZIP code affect your car insurance?

Additional factors that affect car insurance premiums

In addition to the coverage you select and where you live, additional factors can influence your car insurance premium — like your age, which is a big one. Zhaneta Gechev, insurance expert and founder of One Stop Life Insurance, explains how premiums change over time.

“Generally, the younger you are, the more expensive your car insurance will be. As you age, your insurance costs will decrease. You will notice a significant drop at 25, again around 50, and then once you are over 75, your premiums may start increasing again.”

Additional factors that affect car insurance premiums include:

• Deductible. Selecting a policy with a lower deductible may increase your premium because your insurer will have to pay more if you file a claim.

• Claims. In the eyes of the insurance company, filing a claim — even a small one — increases the risk of you filing future claims, which may result in a higher premium when you renew your policy.

• Traffic violations. The more traffic violations you have, the riskier you are to insure, which leads to higher premiums.

• Credit score. A lower credit score is an indicator of risk, which may increase your premium.

• Vehicle make, model, and year. Newer vehicles cost more to insure because they have higher replacement values. Certain vehicle brands and models are also more expensive to insure due to the risk of theft and higher repair costs. High-performance sports cars may also be driven more aggressively.

• Optional insurance add-ons. Emergency roadside assistance, accident forgiveness, rental car reimbursement, and other policy add-ons provide additional protections beyond standard coverage for an additional cost.

How to save on car insurance premiums

If it’s been a few years since you last shopped for car insurance, it would be worth your time to compare costs. Insurance rates and needs change over time, and you may be able to find a better deal.

Learn more: How to find cheap car insurance

Work with an expert

Howard Goldberg, vice president of Customer Solutions at Plymouth Rock Assurance, highlights the value of shopping around and working with an expert.

“When comparing premiums between companies, make sure that you’re using the same coverage limits and deductibles. This way, you’ll have a direct comparison between actual insurance products and a more accurate look at pricing. Talking to an independent agent is a great place to start since they can guide your decision-making based on their experience and by understanding your unique insurance needs. They can also help by providing you with quotes from multiple carriers and explaining the differences between each one.”

Research available discounts

Many car insurance providers also offer discounts for military personnel, being a good student, having a safe driving record, and other factors. You may also qualify for a discount if you bundle your auto policy with your homeowners insurance or other types of insurance with the same provider. It’s important to make sure you are taking advantage of all available discounts.

Learn more: How to get all the best car insurance discounts

Review deductibles and claims

Adjusting your deductible and avoiding unnecessary claims are additional ways you can save. A higher deductible typically decreases your premium because you will cover a higher percentage of the repair costs in an accident. Paying for minor repairs yourself may also reduce the number of claims you file.

Auto insurance premium FAQs

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

A premium is the amount you pay for your car insurance policy, while a quote is an estimate of what you might pay for car insurance with a provider. Obtaining a quote is a good way to compare costs to make sure you get the best deal, but it doesn’t obligate you to purchase a policy.

Can my car insurance premium change during a policy term?

A policy term is the length of time your coverage is in effect and is either six months or one year. The rate you pay for your car insurance will not change during a policy term unless you make changes during a term. If you are in an accident or you experience a DUI, your premium will not change during the policy term. However, it may result in a premium increase when your policy renews.

Can I negotiate my car insurance premium?

You can’t negotiate your car insurance premium. However, you may still be able to save by making sure you are taking advantage of all available discounts. If you feel like you are paying too much with your current insurance provider, you can also shop around to see if another insurer offers better rates.

This article was edited by Tim Manni.