State Farm Insurance Co. plans to build a $32 million, 355,000-square-foot regional headquarters in Frederick, a move that will keep 678 jobs there, the company's regional vice president said yesterday.

"Last year was an excellent year from the viewpoint of both sales and profit," said the executive, K. Don Waskom. "We had our second-best year ever in sales."

James Schmersahl, planning director for the city of Frederick, said State Farm hasn't filed a site plan for the new building but that the 103-acre site -- which the company has under option to buy from a partnership that is in bankruptcy proceedings -- is zoned for light manufacturing, a classification that allows office development.

The biggest impediment to the project, which is expected to be complete by late 1995 or early 1996, is the need for a road to connect Route 26 with U.S. 15.

Mr. Schmersahl said roads around State Farm's current site prevent the company from expanding.

State Farm is the leading auto insurer in Maryland, with 19.4 percent of the market. The company also writes about 18 percent of the homeowners' insurance policies in the state.