Once upon a time, the only way you could purchase auto insurance was to pay for it six months or a year in advance. This required some forethought and budgeting for drivers so that they would have enough money to foot the bill for that annual or semiannual payment.
But as more states began requiring auto insurance for its drivers, insurers slowly began to make this process more convenient by offering policies with monthly payments. Today, it’s more common to submit a payment each month for your auto coverage than it is to pay for six or twelve months all at once.
In fact, auto insurers are now offering significant discounts to drivers who choose to make one or two payments each year instead of one each month. But are these discounts worth the reduced level of convenience?
How Much Can You Save?
As with many other factors, the size of the discount for paying for your premium up front varies greatly by insurer. Some insurance companies only charge a fee of a few dollars for each monthly payment made. But others might offer you steep price breaks of 5%, 10%, or even 20% if you pay for a year’s worth of coverage at a time.
Pros of Annual Payments
There are other advantages to opting for paying your premium annually (in addition to saving money, of course). For one thing, it buys you a year’s worth of peace of mind during which you don’t have to worry about sending in the payment on time and/or paying late fees for missing a due date (or even having your insurance cancelled altogether). So this option might be preferred by those who have trouble keeping up with monthly payments. In addition, it allows you to pay your entire year’s premium after you get a substantial influx of cash, like many seasonal employees or retirees who receive quarterly disbursements from investment accounts do.
Pros of Monthly Payments
The benefits of making monthly payments for auto insurance are fairly obvious. The biggest one is the elimination of the practice of either having to save extra money over the course of a year for your car insurance, or to take the financial hit that a lump sum payment can wreak on a household budget. For people who are living paycheck to paycheck and/or don’t have savings accounts, monthly auto insurance payments are really the only option.
Monthly or Yearly: Which is Better?
So which method is right for you? Obviously, it depends largely on your financial situation and comfort level. But another determinant is the amount of savings you’ll reap if you do make a lump sum payment. For example, it may not be worth it if you save $30 a year in fees. But if you save $300 (or perhaps more), then the favorable outcome on your bottom line might be worth it if you have the fiscal flexibility to pay for a year of coverage.
Either way, it’s important to find out how much of a discount your insurer offers for paying for 12 months instead of one, because it may factor into your decision about which company to give your business to. On that note, Auto Insurance Specialists can get you auto insurance quotes from multiple companies, some of whom might give you lump sum discounts that may be worth your while.
This content is offered for educational purposes only and does not represent contractual agreements. The definitions, terms and coverage’s in a given policy may be different than those suggested here and such policy will be governed by the language contained therein. No warranty or appropriateness for a specific purpose is expressed or implied.