What Is a Car Insurance Premium?

By Contributing Writer

  • Overview

    What Is a Car Insurance Premium?
    Like most good things in life, car insurance does not come without a price tag. In the insurance industry, that price tag is called a "car insurance premium." Basically, it is the specific amount of money that your insurance company charges you for your auto insurance coverage.
  • Types

    A car insurance premium refers to either the total cost of the insurance policy, or it may refer to the smaller installment amounts that you pay at specified intervals to keep the coverage in force. The term applies to a monthly car insurance premium or a quarterly car insurance premium. Many companies offer a significant discount if you pay the entire insurance premium in full.
  • Quotes

    A car insurance premium is distinguished from a car insurance quote by the fact that a quote is simply an estimation of the final cost of an insurance policy. Commonly, an insurance quote is calculated based on preliminary information to help the buyer make an informed decision. Once the buyer chooses to go ahead and buy the coverage, additional information is obtained to calculate a final premium, which will be charged once the policy is issued. The quote may be higher, lower or the same as the final car insurance premium.


  • Calculation

    A number of sophisticated statistical models are used to calculate a car insurance premium. The final figure is, in essence, an estimation of the risk that you present as a driver. A relatively high insurance premium indicates that, statistically, there is a relatively high probability that you will be involved in an accident and need to file a claim. It is also an estimation of the potential size of any claim you may file.
  • Factors

    A number of variables are factored into the calculation of a car insurance premium. Your age and gender, for example, will influence the rates that you will be charged. Drivers under the age of 25 and over the age of 65 will have higher car insurance premiums than most other drivers. A driver with a clean driving record will pay a lower premium than a driver who has a number of accidents and violations on his driving record. A higher premium will be charged for a new, expensive model than an old one. Other rating factors include your credit score, primary residence as well as the value and model of the car that you are insuring.
  • Variation

    Car insurance premiums for the exact same coverage will often vary widely from one company to the other. This variation is based on the specific factors that any given insurer uses to calculate your rates. Some may give more weight to your credit score, while another will focus on your driving record. This is why it is important to shop around and get different quotes before you buy or renew your car insurance policy.
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