Car Insurance Premiums: Monthly Vs. Annual Payments

When you purchase a car insurance policy, you’ll likely have the option of paying your annual premium upfront or opting for monthly payments. Depending on your budget, either option could be right for you. Here are a few things to consider:

Monthly payments may be easier to manage

If you’re on a budget and don’t have the luxury of a cushy savings account, monthly payments may be the only logical choice for you. For this reason, many policyholders opt to pay several smaller, easy-to-manage payments over a longer period of time rather than forking over one lump sum at the time of purchase.

Annual payments may be more convenient

Rather than pulling out your checkbook or logging in to your account every month, you only have to deal with making an annual payment once every year. If you’re looking to cut down on the number of bills you’ve got to keep up with every month, you may be relieved to pay off your insurance all at once and then push it out of your mind for the other 364 days of the year.

Monthly payments may help prevent lapses

If you choose to pay for your policy in annual payments, it’s extremely important to find out the exact date your policy will lapse in order to prevent losing your coverage. If you opt for monthly payments, it’s typically easier to keep up with the status of your policy. Plus, if you ever choose to switch providers you’ll likely only have one or two weeks of overlap between the old and new policy.

Annual payments could help you avoid overpaying on interest

Many insurance companies actually prefer their customers to pay for policies in one lump sum, because payment for coverage is securely guaranteed for a full year. Some offer discounts of as much as 5% for paying off the premium up front. In addition, a fee is sometimes applied to monthly payments (since the full premium hasn’t been covered yet). When you add up the extra fees and interest, some policyholders find that they’re actually shelling out an extra $100 or more by opting for monthly payments rather than one annual payment.

Before you swipe your credit card, take a second to weigh the advantages and disadvantages of both options. Do you have enough to cover the full premium in one lump payment? Can you afford to pay an extra $100 for the convenience of distributing your premium into smaller monthly payments? If you have questions about which option is right for your budget, discuss them with your licensed agent before you purchase.

Source: AutoInsurance