Understanding insurance can be tricky for many drivers, especially with terms like “premium” thrown into the mix.
In a nutshell, an auto insurance premium refers to how much you pay for insurance on your vehicle. Auto insurance or proof of financial responsibility is required in all 50 states. Each has a minimum requirement, but there are many options to choose from when insuring your vehicle. You can get minimum coverage, full coverage, or something in between.
The more insurance you get, the higher the premium. Premiums can be paid monthly, every six months, or annually. A vehicle premium serves as income for the insurance company, but it also serves as a liability. You may pay $50 a month for coverage. However, if you get in an accident and total your vehicle, the insurance company may have to pay to replace it, which would be far more than what you are paying.
Another thing to consider is that not everyone pays the same auto insurance premium. Premiums are based on how much of a risk you pose to the insurance company. If you are a good driver with 20 years of experience, for example, you pose less of a risk than a newly licensed teen driver. As such, their premium may be more than yours. Driving history, DUIs, age, gender, the type of vehicle you drive, and where you live are all factors that affect premium rates.
Now that you know what a car insurance premium is, you can factor it into your budget. You can also discuss your premium with your agent to determine what discounts you qualify for.