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Auto insurance is a necessary evil in the process of car ownership. Most states require some level of insurance, but if you are financing your car or want the assurance of coverage in case of an accident, you need to invest in full coverage. Once you have insurance set up, you have a couple of options for paying for that coverage.
Ask any driver, and they’ll likely have different opinions on whether it’s better to pay for car insurance monthly or all at once for the year. You find almost as many differing views on how to best pay your insurance as those who disagree between paying for liability vs. full coverage.
Comparing the Pros and Cons
Each option has pros and cons, so weighing your choices before making a decision is crucial. For many, monetary expenses are only one of the critical parts in deciding how to best pay for your car insurance. Keep reading to learn more about monthly and annual car insurance payments.
Monthly Payments
With monthly payments, your insurance premium for the year or the six-month term of the policy is divided over the number of months of your policy. A small percentage is added to cover administration fees and interest. Typically, the additional amount is equal to or close to one month worth of your typical payments.
Pros
Many people pay their insurance premiums monthly, as it can be more convenient than making one lump-sum payment each year. This can be helpful if you are tight on cash flow, as it allows you to spread the cost of your premium over 12 months.
It can also make it easier to budget for other expenses. In addition, if you need to cancel your policy mid-term, you will only be responsible for the payments you have already made rather than the entire premium. For these reasons, monthly payments can be a convenient option for many people.
Cons
Making monthly payments on your car insurance can be a great way to budget for your expenses, but there are a few things you should be aware of before you commit to this type of payment plan. For one, monthly payments typically cost more in the long run because insurance companies charge interest on the outstanding balance.
This means that if you have a car insurance policy with a $100 monthly premium, you could pay $120 or more over a year. Another thing to consider is that you could cancel your policy if you miss a payment or are late. This could leave you without coverage when you need it most, so it’s essential to ensure you can always keep up with your payments.
Annual Payments
Once your insurance premium is calculated, you can pay the total all at once and not incur the interest and administration fees.
Pros
One advantage of paying your car insurance premium all at once is that you’ll save money in the long run because there’s no interest charged on an annual policy. Another advantage is that you won’t have to worry about making a payment every month.
Cons
However, coming up with the total premium can be difficult for some people. It doesn’t make sense to do this if you have to borrow money from family or friends to pay your annual premium. In addition, if you cancel your policy early, you could lose a lot of money since there’s no refund for unused time on an annual policy.
A Personal Choice
Whether to pay monthly or annually for car insurance depends on what makes the most sense. If you can afford to pay all at once, it’s generally cheaper, in the long run, to go with an annual policy.
However, if paying monthly works better with your budget, there are ways to keep your costs down (like setting up autopayments from your checking account, so you’re never late on a payment).
Ask About Discounts to Counter the Interest
There are several ways to save money on your monthly car insurance payments. Ask your insurance company about discounts for which you may be eligible.
- Many companies offer discounts for good drivers, students, and seniors.
- You can also save money by bundling your car insurance with other policies, like homeowners’ or renters’ insurance.
- Another way to lower your monthly premiums is by increasing your deductible. This means you will have to pay more out-of-pocket if you need to make a claim, but it can save you a lot of money in the long run.
- Consider shopping around for a new policy every few years. Insurance rates vary from company to company, so it’s always worth comparing rates before renewing your policy.
Whichever way you pay, ensure you’re getting the best rate by shopping around and comparing quotes from different insurers!