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 circ*mstances. 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.
Related Categories
Insurance
Tyreo Harrison
As Executive Vice President, Lending & Insurance Solutions, Ty Harrison leads teams of lending and insurance professionals that are dedicated to delivering value-added programs, services and technology tailored to address the needs of lenders, loan servicers, portfolio managers, mortgage brokers, insurance agents and insurance brokers.
FAQs
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.
Is it better to pay your car insurance monthly or annually? ›
Some insurance companies offer a pay-in-full discount that can help make paying your premium as a lump sum more beneficial. If you can afford to pay your premium upfront and your company provides a discount for doing so, an annual payment plan might be a good choice for you.
Is it better to pay life insurance monthly or annually? ›
Annual payments save you some money and are a good option if you're able to pay a larger sum upfront, but monthly payments can be more manageable for the average person. Beneficiaries: The people you name on your life insurance policy to receive the lump sum of money — also known as the death benefit — when you die.
Is insurance premium annual or monthly? ›
Premiums are usually paid either monthly, every six months, or annually and are determined by various factors, including your driving record, age, and the coverages you select as part of your policy.
What is the best auto insurance setting? ›
You should carry the highest amount of liability coverage you can afford, with 100/300/100 being the best coverage level for most drivers. You may need to carry additional coverages to protect your vehicle, including comprehensive, collision and gap coverage.
Should I pay my insurance monthly or yearly? ›
Is it worth getting an annual car insurance policy? Paying your car insurance premium in one go every year is the cheapest – and easiest – way to do it. That's because you won't have to worry about paying any interest. It also means you won't have to think about it again for another 12 months.
Is it better to pay monthly or yearly? ›
While annual subscriptions offer cost savings and less administrative hassle, monthly subscriptions provide flexibility and lower upfront costs. Your choice might hinge on your cash flow, budgeting preferences, and the level of commitment you're willing to make to a particular service.
Is it cheaper to pay monthly or annually? ›
Weighing Your Options
If you can afford the upfront cost, annual payments are generally less expensive in the long run. However, if you need to manage cash flow more carefully, monthly payments offer the flexibility needed to balance your finances without compromising on coverage.
Why is annual premium cheaper than monthly? ›
Insurers often provide discounts for annual payments, reducing the overall expense. Additionally, annual payments eliminate the risk of missing monthly or quarterly payments, ensuring continuous coverage. It simplifies financial planning, as policyholders only need to address the premium once a year.
What is a reasonable amount to pay monthly for life insurance? ›
The average cost of a life insurance policy ranges from $40 to $55 monthly. The true cost varies by the type of insurance, coverage amount, and personal factors.
Your Progressive rates may increase after six months depending on a number of factors. Like other car insurance providers, Progressive will typically raise your rates if you receive a speeding ticket or moving violation, cause an accident or make comprehensive insurance claims.
What should you increase your collision deductible to? ›
Reasons you might want a higher deductible
The most obvious reason to consider a higher deductible is to save money on your auto insurance costs. According to insurance giant Progressive, switching your collision deductible from $500 to $1,000 can lower your premium by about 28%.
Who pays the annual premium? ›
An insurance premium is the amount of money an individual or business pays for an insurance policy. Insurance premiums are paid on policies that cover a variety of personal and commercial risks. If the policyowner fails to pay the premium, the insurance company may cancel the policy.
What is the simplest way to lower your auto insurance premium? ›
Increase your deductible
Depending on your insurance provider, paying a higher deductible (the amount you pay out of pocket before your insurance coverage kicks in, in the event of an incident) is typically a quick and easy way you can decrease your auto insurance payments.
What is the #1 auto insurance in the US? ›
State Farm is the biggest auto insurance company in the country by market share, while Progressive, Geico and Allstate are the next three.
Which is cheaper, Geico or Progressive? ›
Key Takeaways: Geico is best for you if you're simply looking for the cheapest option, as the provider has a cheaper average rate estimate in 82% of states across the U.S. Progressive is best for you if you're looking for more coverage options, add-ons and customizations.
Is paying monthly for a car a good idea? ›
Making monthly payments over time may be more manageable for your budget than paying the full price upfront. You can build your credit. When you make on-time car payments, your credit report shows that your auto loan is current or paid as agreed.
Is it better to pay your insurance completely or to make payment? ›
Fewer Bills Throughout the Year
No matter how you manage your bills, paying your premium in full will reduce the number of insurance payments you make in a year. In addition, fewer monthly expenses could help you allocate funds throughout the year for when it's time to renew your policy.
Is it smart to pay car insurance in full? ›
In general, paying your car insurance premium annually rather than monthly is the cheapest option. Providers incur processing costs if you pay your premium in installments, and those costs get folded into your monthly payment. Most insurers offer a discount if you pay in full because it keeps their costs down.
