Ah, summer! Time for lazy days spent lounging by the pool, backyard barbeques, fireflies at dusk, and everyone’s favorite—summer vacation. With COVID-19 in full force this time last year, many of us h...
The cost of auto insurance can be daunting, so for many drivers, it’s a relief to be able to pay in monthly installments for the year. While this may seem like the most convenient option, it’s not always the most affordable in the long run. Most insurance companies give you the choice of paying for the entire policy annually or spreading out the payments over each month, but which is the best option? Well, it completely depends on your circumstances. Here are some ways to choose the right payment method for you.
Annual Car Insurance Payments
Paying your insurance premiums annually is almost always the least expensive option. Many companies give you a discount for paying in full because it costs more for the insurance company if a policyholder pays their premiums monthly since that requires manual processing each month to keep the policy active.
Not only can you save money on an annual premium, you have the advantage of getting that bill out of the way for the entire year. This is extremely helpful to people who have income that fluctuates throughout the year or is seasonal, get an annual bonus, or get a tax refund. It can also be helpful for people who have trouble keeping up with monthly payments. Paying the insurance premium once a year could save you money if you usually incur late fees. It could even save you from having your coverage canceled because you are behind on your payments.
Monthly Car Insurance Payments
If you can’t afford to pay upfront for the full year’s insurance premium, most insurance companies now allow you to pay the premium on a monthly payment plan. Instead of paying the entire premium annually, the premium is divided by 12, and that amount is due each month. This can be a very convenient way to pay your premium. However, most companies charge an installment fee for this convenience since it takes more work on the company’s part to process 12 payments instead of just one.
Even with a monthly fee, paying in monthly installments is a better option for some people. It allows you to spread the cost of the premium out over time as most people budget their money on a monthly basis. Since most people have a fairly standard income each month, it makes it easy to set aside the premium to be paid along with their other monthly bills.
If you expect a major change in your policy before the year is up, like removing a teenage driver from your policy, you’ll want the ability to take them off the policy and see immediate savings.
Monthly payments might also be a good choice for someone who may have the money to pay an annual premium but wants to invest the extra money or use it for another large expense.
Annual Vs. Monthly: The Price Difference
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.
Other Things to Keep in Mind
Before you decide whether an annual payment or monthly payment schedule is best, you should look into other payment discounts you might be eligible for. Many companies are giving discounts to clients who use electronic payments to cover their premiums. Some companies also give you a discount if you set up automatic payments with them. Not only can this option get you a discount, but you’ll never have to worry about paying that bill each month.
Often the discount you receive for electronic or automatic payments offsets any installment fees you might pay each month, so if you’re vacillating between annual or monthly payments, find out if any of these discounts is available.
For additional auto insurance cost-saving tips, check out 4 Ways to Save on Insurance.
Ultimately, you want to find a payment method for your auto insurance that creates a balance between meeting personal preferences and saving you the most money while giving you the auto insurance protection you need.
As Executive Vice President, B2C Channel Development, Tyreo Harrison enables referral partners and financial institutions to offer personal, commercial and surplus lines insurance products to increase non-interest income, improve borrower retention and add value to their service offering. He maintains his General Lines Agent Licenses for Property and Casualty, Life, Accident, Health, and HMO. He is a graduate of the North San Antonio Chamber of Commerce Leadership Lab and in 2008 was named as one of the San Antonio Business Journal’s “40 Under 40” Rising Stars. Prior to joining SWBC in 2005, Tyreo played professional football for the Philadelphia Eagles and Green Bay Packers.