Drivers get a personalized quote before purchasing a car insurance policy, which tells them how much they will pay for coverage over a 6-month or 12-month period. While every driver pays a different rate for insurance, the average car insurance premium in the United States is $1,674 per year for full coverage and $565 per year for minimum coverage.

However, many drivers simply assume that their car insurance premium is the flat cost of coverage. Meaning, they do not understand why they are paying so much for coverage and how each coverage type impacts their overall rate or protection after an accident. Understanding how car insurance rates work can help you during the quoting process, and it may also help you save some money. 

Your auto insurance premium

Your auto insurance premium is the cost you pay to your auto insurer to keep your car insurance policy in force. It may also be referred to as a quote or rate. Most drivers pay their premium on a monthly, six-month, or annual basis. If you stop paying the premium, your insurance can lapse, and will eventually cancel, which will leave you without auto insurance and can negatively impact your rate in the future, among other factors. 

Car insurance premiums are different for every driver. There are a variety of personal factors that contribute to your rate, including your age, driving experience, credit score (in most states), claims history, gender, and driving record. In addition, your coverage options, deductibles, policy limits, vehicle type, and the insurance company you choose can affect your premium.

Your auto insurance quote

When you set up a car insurance policy, you will select the type and amount of coverage you need, which your auto insurance company will use to calculate your personal quote. Every coverage you add will affect your premium. Similarly, raising your coverage limits will usually increase your rate, but these increases may be minimal. Here is a closer look at some of the biggest variables that will impact your car insurance quote.

Bodily Injury Liability Per Person and Per Accident

Bodily injury liability coverage is required in most states, and you must carry at least a minimum amount of coverage in order to drive legally. If you cause an accident, this coverage pays for the other driver’s injuries, as well as your legal fees if you get sued.

When you look at your car insurance quote, you will see a per person limit and a per accident limit for bodily injury liability. The per-person limit is the maximum amount of coverage you have for one person’s injuries. The per accident limit is the maximum amount of coverage for all injuries resulting from a single crash.

Property Damage Liability Per Accident

Property damage liability coverage will pay for another driver’s property damage losses, like vehicle repairs, if you cause an accident. It can also pay for damage to items like signs, guardrails, fences, mailboxes, etc., if you were to hit them. You will see a coverage limit for property damage coverage per accident on your car insurance quote, which is the maximum payout for a single crash. 

Like with bodily injury liability coverage, you have the option to increase your property damage liability coverage limit beyond the minimum amount.

Uninsured and Underinsured motorist

Uninsured and underinsured motorist coverage may be required, depending on your state. These coverage types help cover your losses if you get hit by a driver who is uninsured or does not have enough insurance to cover the accident in full.

Your state may only require uninsured motorist coverage or both uninsured and underinsured motorist coverage. Often, these coverage types are related to injuries caused to you and guest passengers from an accident involving an uninsured or underinsured motorist. However, depending on where you live, you may have an option to carry uninsured motorist property damage coverage too. This coverage would help cover repair costs to your vehicle but usually does include a deductible.

Personal Injury Protection (PIP) and MedPay

Personal injury protection (PIP) is a required coverage in no-fault states. It covers your medical bills after an accident, regardless of which driver was responsible, up to the coverage level you choose when setting up your policy. PIP can also include additional coverage for essential services, lost wages, and funeral expenses. PIP may include a deductible, so check your policy to see if one is listed.  

If you live in a fault state, you will likely have medical payments coverage as a coverage option. This coverage helps cover medical-related expenses but does not include coverage for essential services, lost wages, or funeral expenses. Only a few states require medical payments. Otherwise, you can choose not to include it in your policy if desired. 

Comprehensive

Comprehensive car insurance coverage will pay for your vehicle’s repairs stemming from a covered non-collision incident, like a fire, theft, glass breakage, or an accident with an animal. Comprehensive insurance has a deductible, and the deductible you choose for comprehensive coverage will affect your car insurance premium. 

Collision

Collision coverage helps pay for your vehicle’s damages after an accident with another vehicle or object, other than hitting an animal. Like comprehensive insurance, collision insurance also has a deductible. Your selected collision deductible does not have to be the same deductible chosen for your comprehensive deductible. 

Deductible

As mentioned, deductibles impact car insurance quotes. A deductible is an out-of-pocket cost you are required to pay in the event of a claim. Raising your deductibles will generally cause your premium to drop, and lowering your deductible will cause your premium to increase. 

Optional versus required coverages

Some car insurance coverage types are required, while others are optional. If you live in a state that mandates car insurance, the required coverages are typically bodily injury and property damage liability insurance. Some states also require uninsured and underinsured motorist coverage. PIP is required if you live in a no-fault state, and medical payments coverage is required in a few states. 

Most lienholders or lessors will require additional coverage beyond your state-mandated coverage if you finance or lease your vehicle. These additional coverage requirements usually include comprehensive and collision coverage. 

To help determine the right coverage for you, you must understand what coverage is required based on your personal situation. Then, closely consider your driving habits and the risk where you live to help you determine your coverage levels and deductibles. You may find that spending more money to buy a more robust policy is a better option in the long run.

Getting guidance on coverage amounts

If you need help figuring out how much car insurance to get, you can always reach out to an agent from your insurance company. They can recommend an appropriate amount of coverage for your situation. They can also let you know how you might save money by taking advantage of discounts. 

Many of the best car insurance companies also offer online resources and tools to help you choose an appropriate amount of coverage. If you have not yet purchased car insurance, you can also contact an insurance broker who represents multiple auto insurers and might be able to give you a wider range of options to fit your needs and budget.

The bottom line 

Choosing the right amount of car insurance can be confusing, especially if you have never purchased auto insurance before and are trying to fit it in your budget. However, buying adequate coverage is essential. Otherwise, you could end up paying high out-of-pocket costs in the event of a claim. 

Keep in mind that choosing the lowest coverage limit will result in the least amount of protection. Many drivers can benefit from spending a little more money to get a higher coverage limit, which can help you save money in the long run.

A Bankrate writer, Elizabeth Rivelli has two years of experience writing for insurance websites like The Simple Dollar, Coverage.com and NextAdvisor, among others. In addition to auto insurance, Elizabeth regularly writes about home insurance, renters insurance and life insurance. She also covers industry trends and general insurance education.