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Insurance car premium is the money a car owner pays an insurance company to get coverage. This premium covers you in case of an accident, theft, damage, and even legal liability arising from third-party losses. Depending on your coverage, car premiums are often made every month or every 6 months. These payments vary depending on the insurance company you choose, the type of cover, the make and model of your vehicle, as well as geographical location among other factors. If you own a car, you must have at least the minimum liability insurance required by your state.
How Do Vehicle Insurance Premiums Work?
Depending on how often you make payments, insurance premiums give you coverage for a specific duration. During this time, if you are involved in a crash, you can make a claim to your company depending on the damage.
If you are not involved in a crash for the duration of your coverage, you lose your premiums. However, as a reward, you receive a No Claim Bonus ranging from 20% to 50% of the paid premiums depending on how long you have had your coverage. Some insurers recommend that you do not claim for minor collisions.
Key Factors That Influence Your Car Insurance Premiums
Insurance companies use several factors to determine your premiums.
Insured Declared Value of your car
This is the maximum amount an insurance company can pay. The IDV is usually close to the market value of your car. If you buy a brand new car, the IDV will be determined by the price listed at the showroom. This value depreciates over time.
So, if you insure the brand new car again after a year, the IDV will be less than the previous year to factor in depreciation.
When quoting your car’s market value, do not use a figure that is less than its market value. Even though you might pay lower premiums, your claims also decrease which means any losses you incur as a result of a collision will be paid out of pocket.
Type of Car
Cars with higher rates of theft or collisions are considered riskier and cost more to insure which drives up your premiums.
Driving Record
If you have a history of speeding, accidents, and traffic violations, you are also considered a high-risk driver and you will be charged more in premiums.
Driving Habits
Most insurance companies have user-based discounts for drivers who do not use their vehicles frequently.
Geographical Area
Each state has different regulations that determine the minimum coverage. If your state also has higher rates of car theft or accidents, you may have to pay more in premiums.
Other factors that determine your insurance premiums include:
● Age: Younger drivers aged 16 to 25 pay higher premiums as they are considered less experienced and at more risk of getting involved in accidents.
● Credit history: In some states, your credit history may have an impact on your insurance rates with poor credit costing you more in premiums.
● Coverage level: Carrying the minimum required coverage by your state ensures you pay low premiums. However, coverage under such policies is limited.
● Deductibles: Most insurance companies offer you a deductible if you buy a collision and comprehensive policy which results in lower premiums.
● Discounts: If your insurance provider offers discounts such as military discount or multiple policy discount, you could pay less in premiums.
How Can You Lower Your Insurance Premiums?
There are several strategies you can apply to lower your insurance premiums. Typically, the best way to save money on your premiums is to shop and compare rates from different companies. Switching insurers can save you a significant amount in premiums.
Drop Unnecessary Coverage
You are legally required to maintain the minimum insurance liability in your state. However, you can reduce your premiums by dropping unnecessary coverage. For instance, if you have an older car, maintaining a comprehensive insurance cover may not be in your best interests.
Driver Safety Course
Most insurance companies will give you a discount for taking a driver safety course. These are state-approved programs that take 6-8 hours.
Bundle Your Policies
Purchasing different policies with the same company such as homeowners’ insurance with car insurance can also get you significant discounts on premiums.
Opt for Usage-Based Insurance
If your state offers it, user-based insurance could get you attractive rewards for your safe driving habits. Insurance companies use an app to track your average speed, braking, and driving frequency.
How Often Do You Pay Car Insurance Premiums?
Different companies offer different payment plans. The most common payment plans are monthly, twice a year, and yearly. Some insurers let you decide when to make payment at your convenience. We recommend paying upfront to maximize discounts on your premiums.
However, car insurance companies can ask you to pay upfront as a condition of coverage if you are considered a high-risk driver. If you have a lapse in premium payments, require an SR-22, or have a poor driving record, your insurer may ask you to make payment in full to reduce their risk.
How Does a Lapse Affect Car Insurance Premiums?
A lapse in insurance premiums is an indicator of risky behavior. Insurance companies will deem you as a potential risk and are likely to increase your premiums by a significant markup even for minimum liability coverage.
Penalties range from an 8% increase for a lapse lasting 30 days or less and up to 35% or more for lapses lasting over a month.
For accidental lapses, call your insurer to find out whether your policy can be reinstated. In case you are unable to pay your insurance, we recommend shopping for a different insurer for affordable rates.
Remember, it is illegal to drive uninsured and penalties may include a suspended license or jail time.
Summary
There are numerous factors that affect your car insurance premiums. Some companies may even refuse to offer you coverage if you have a medical condition that affects your driving.
