What Is a Car Insurance Premium?
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If you've ever had to buy car insurance (or any insurance for that matter), you've likely come across the term premium somewhere along your journey.
Don't let this fancy word confuse you.
A premium is just another word insurance companies use for price. More specifically, it's the price you pay your insurer in exchange for coverage.
Car insurance premiums are typically shown as one-month, six-month or yearly totals. While you can pay your policy's six-month or annual premium in one lump sum (and possibly receive an auto insurance discount), most companies allow you to pay your premium monthly.
Once you pay your first premium — or the total, if you opt to pay it entirely — you are officially covered by insurance. Just be sure to continue making on-time payments to stay insured and avoid a gap in coverage, which could raise your premium.
Take note: While a car insurance premium is the price you pay for your auto policy, it may not be your only cost. For example, if you get into an accident and file a claim, you may have to pay a deductible before receiving a payout. And if you don't have enough insurance, you might end up paying out of pocket for leftover expenses after an accident.
What's the difference between a premium and a quote?
If you've ever shopped around for car insurance online or over the phone, chances are you were given a quote. A quote is simply an estimate of your policy's premium.
Your car insurance premium will likely differ from the estimated quote you were given before. This happens because insurance companies don't always ask for all of the information required when providing quotes. Instead, companies will do their due diligence before giving you a final price.
Insurance companies will catch anything you forgot or failed to mention when filling out a quote form (such as that speeding ticket from three years ago). So be as accurate and truthful as possible to receive a more realistic quote.
Why is my car insurance premium so high?
Premiums in car insurance can vary a lot from person to person — even if that person is your neighbor and drives the same car you do. That's because auto insurers look at many different factors when coming up with a premium, such as:
Driver details. Age, gender, geographic location, marital status, driving record and credit score are some factors considered, depending on the state you live in.
Car details. The make and model of the car, the total miles driven, theft rates and safety features are some factors insurers weigh.
Policy details. These factors include coverage types and limits, deductibles and discounts you qualify for.
On top of that, auto insurers weigh each of these factors differently. So while you may have a low premium with one insurer, another may charge you more than double. That's why it's important to shop around and get at least three quotes to ensure you're getting the best price.
For a more complete list of factors that impact your car insurance premium and ways to lower it, check out our article on what affects car insurance rates.
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