Should you pay car insurance in installments?
With annual premiums that can reach thousands of dollars, you may be wondering, "Can I pay my car insurance monthly?" Most car insurance companies offer monthly payment options, which can be a useful budgeting tool for some people. Others may prefer to pay in full to avoid the additional monthly bill and possibly earn a discount. StrongInsurance has broken down the benefits and drawbacks of splitting your car insurance premium into monthly installments so you can choose the best payment plan for you.
Is it better to pay car insurance monthly or in full?
Should you pay for your car insurance in one lump sum or in monthly installments? The short answer is that it depends. When selecting a car insurance payment plan, consider your financial situation, how you prefer to pay your bills, and your likelihood of switching companies in the future.
If paying your premium in full causes financial hardship, you may want to divide it into smaller payments. Car insurance in the United States costs an average of $1,771 per year for full coverage, making it an expensive expense for many people. You don't want to pay your premium in full only to discover that you need the money later for an unexpected expense, so consider your entire financial picture when making your decision.
Consider installment fees
Installment fees are another factor to consider when selecting a car insurance payment plan. Payment processing fees are typically charged by credit card companies and financial institutions, and many insurance companies recoup this by adding an installment fee to your monthly bill. These installment fees are typically small, but they are also unregulated. An insurance company can set their own installment fee, even if it is higher than the fee they are charged to process your payment.
Consider potential savings
Some insurance companies provide a pay-in-full discount, which can make paying your premium in one lump sum more advantageous. An annual payment plan may be a good option for you if you can afford to pay your premium in advance and your company offers a discount for doing so.
Consider your bill payment preferences
Whether you want to pay in installments or in one lump sum is also determined by how you prefer to pay your bills. Some people find paying a monthly bill inconvenient and would rather make a single payment for the entire year. Others may struggle to remember to pay their annual premium because it only occurs once a year. Whatever option you select, it is critical that you make your insurance payment on time to avoid a lapse in coverage and possible late payment fees.
Consider the likelihood of switching carriers
Finally, before selecting a payment plan, consider how likely it is that you will switch insurance companies in the middle of your policy term. Because of the way policy refunds are structured, it may be easier to cancel your policy midterm if you are on a monthly payment plan.
If you cancel a policy in the middle of its term, your insurance company will either issue a prorated refund or a prorated bill, depending on where you are in your billing cycle. If you're on an annual payment plan, your refund will most likely be larger because you paid in advance. Some businesses may take up to 14 business days to process your refund, tying up what could be a significant amount of money. This refund process may make it difficult to make your first payment for a policy with a new car insurance company.
Pros and cons of paying car insurance monthly
While there are numerous factors to consider when deciding to pay for your car insurance on a monthly basis, here are a few key points:
Perks of paying monthly | Drawbacks of paying monthly |
Smaller payments may be easier to budget | No pay-in-full discount |
May be easier to switch companies midterm | Monthly bill payments may cause inconvenience |
Pros and cons of paying car insurance annually
A yearly car insurance bill could be a good option for you. The table below can assist you in making your decision:
Perks of paying annually | Drawbacks of paying annually |
Policyholders may earn a discount | Can be hard to budget for the lump expense |
No installment charges | More money would be tied up while waiting for a refund if you switch midterm |
Some people find it more convenient to pay once a year |
Other insurance payment methods
If you want to reduce the amount you pay in installment fees but can't afford to pay your premium in full, there may be other options for you:
- Quarterly or semiannual payments: Most car insurance companies offer payment plans that are quarterly or semiannual. These options can provide a happy medium for those who want to split their payments but don't want to bear the full burden of installment fees.
- Autopay: Regardless of your payment plan, you should think about enrolling in autopay. This usually enables an electronic funds transfer (EFT) on the due date. You'll give the insurer access to your bank account or credit card information so they can automatically withdraw funds when the payment is due. Some insurers provide a policy discount for opting for autopay.
- Automatic bill pay: Automatic bill pay is similar to autopay in that you authorize your bank account to send your premium to your insurance company rather than your insurance company withdrawing your premium from your bank account. Most insurance companies prefer autopay because it allows them to withdraw your premium and, as a result, may not offer you a discount for automatic bill pay. If you don't feel comfortable setting up autopay on your car insurance, automatic bill pay may be a way to help you stay on track with your payments and avoid late fees or lapses in coverage.