What Is an Insurance Premium?
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Insurance premium definition
An insurance premium is the amount you pay for an insurance policy, whether that's monthly or once for the full policy. So, when you hear “insurance premium," think “insurance price.”
You typically pay premiums monthly, semiannually or annually, depending on the policy. Insurers sometimes offer a small discount for bundling your policies or paying your premium annually.
The price of your premium depends on the type of insurance you buy, such as life, renters, auto or homeowners. You may also be responsible for an insurance deductible, which is the amount you pay before the insurer starts covering the costs of a claim.
While your insurance premium is your policy’s sticker price, it won’t be the only cost you’ll incur to get coverage. If you file a claim, you may have to pay a deductible specified in your policy before your insurer pays out.
Car insurance premiums
Auto insurance premiums are often based on your age, driving record, claims history and vehicle, as well as the amount of coverage you buy.
In general, you’ll pay the highest premiums for full coverage insurance, which includes liability, comprehensive and collision insurance. A full coverage car insurance policy costs $2,165 a year on average for good drivers with good credit, according to NerdWallet’s November 2024 auto insurance rates analysis. In contrast, a driver with the same background would pay $596 on average for minimum car insurance.
To find the best price, compare car insurance rates when shopping for a policy.
» MORE: The best car insurance companies
Life insurance premiums
Insurers typically use your age and medical history when calculating life insurance premiums. Other factors, such as your credit history, the amount and type of coverage you buy and your employment status, can impact the price. The average cost of life insurance is $26 a month, based on a 20-year, $500,000 term life policy for a 40-year-old, according to NerdWallet’s January 2024 analysis of data provided by Quotacy.
Among the different types of life insurance, permanent policies such as whole life insurance are the most expensive, as coverage can last your entire life. In contrast, term life insurance covers a set period of time, such as 10 or 20 years.
» MORE: Get life insurance quotes
Renters insurance premiums
On average, renters insurance premiums are $12 a month, according to NerdWallet’s January 2024 renters' rates analysis. The price of your premiums is based on specific details, such as the value of your belongings, whether the building has a burglar alarm and your credit score, in most states. Shop around for renters insurance quotes before buying a policy.
Homeowners insurance premiums
The average homeowners insurance premium is $1,820 a year, NerdWallet's January 2024 rates analysis found. Homeowners insurance premiums are based on a variety of factors, such as the building’s location and value, your credit score in most states, your claims history and the amount of coverage you want to buy.
For auto insurance: NerdWallet averaged rates based on public filings obtained by pricing analytics company Quadrant Information Services. We examined rates for 35-year-old men and women for all ZIP codes in all 50 states and Washington, D.C. Although it’s one of the largest insurers in the country, Liberty Mutual is not included in our rates analysis due to a lack of publicly available information. Poor credit rates from The Hanover were removed in both Connecticut and New York. In our analysis, “good drivers” had no moving violations on record; a “good driving” discount was included for this profile. Our “good” and “poor” credit rates are based on credit score approximations and do not account for proprietary scoring criteria used by insurance providers. These are average rates, and your rate will vary based on your personal details, state and insurance provider. Sample drivers had the minimum required coverage by law in each state. Some policies include additional coverage at the insurer’s discretion. We used a 2021 Toyota Camry LE for all drivers and assumed 12,000 annual miles driven.
For life insurance: NerdWallet calculated average life insurance rates based on data provided by Quotacy for a 40-year-old buying a 20-year, $500,000 term life policy.
For renter’s insurance: To find the average cost of renters insurance in the U.S., NerdWallet calculated the median rate for 30-year-old tenants from multiple insurance companies in every ZIP code across all 50 states and Washington, D.C. We also looked at median rates by city and state. Sample tenants were nonsmokers with good credit living in a two-bedroom apartment. They had a $500 deductible and the following coverage limits: $30,000 in personal property coverage. $100,000 in liability coverage. $10,000 in additional living expenses coverage. $1,000 in medical payments coverage. We made minor changes to the sample policy in cases where rates for the above coverage limits or deductibles weren’t available. These are sample rates generated through Quadrant Information Services. Your own rates will be different.
For home insurance: NerdWallet averaged rates for 40-year-old homeowners from a variety of insurance companies in every ZIP code across the U.S. All rates are rounded to the nearest $5. Sample homeowners were nonsmokers with good credit living in a single-family, two-story home built in 1984. They had a $1,000 deductible and the following coverage limits: $300,000 in dwelling coverage. $30,000 in other structures coverage. $150,000 in personal property coverage. $60,000 in loss of use coverage. $300,000 in liability coverage. $1,000 in medical payments coverage. We made minor changes to the sample policy in cases where rates for the above coverage limits or deductibles weren’t available. These are sample rates generated through Quadrant Information Services. Your own rates will be different.
