When purchasing a new auto insurance policy, major insurers typically offer various options to pay your premium. Whether it’s putting down a deposit and utilizing monthly installments or settling the lump sum in full, you may wonder what the advantages are of either choice. While monthly payments can be easier on your wallet, paying your car insurance premium in full could help you lower your annual insurance costs by avoiding fees. If you aren’t sure which option is right for you, let’s cover some pros and cons to help you decide.
In This Blog…
- How Often Do You Have to Pay for Car Insurance?
- Why Should I Pay My Car Insurance in Full?
- What to Consider Before Paying Car Insurance in Full?
How Often Do You Have to Pay for Car Insurance?
You can pay car insurance premiums in several ways, but you’ll typically pay less overall the fewer payments you make. For example, most payments for 6- and 12-month insurance use one of the following payment structures:
- Full payment: When starting a new car insurance policy, you can pay for your coverage term in full. Drivers who pay in full make one annual payment for annual policies or two annual payments for six-month policies.
- Quarterly/split payments: If paying in full is out of your budget, some insurers may offer a middle ground between full payment and monthly installments by allowing you to split payments quarterly. For annual policies, this means making four total payments or two payments for 6-month policies.
- Monthly installments: Depending on your financial standing, monthly installments may have the least impact on your monthly budget. However, although payments are smaller, they may include additional fees or interest if your installments are based on a finance plan.
What Are the Advantages of Paying for Car Insurance in Full?
1. Fewer Bills Throughout the Year
One of the major advantages of paying your car insurance premium in full is that you won’t have to worry about another insurance bill for another 6 or 12 months, depending on the length of your policy.
Some drivers may prefer the convenience of making a one-time payment over having to risk missing a monthly installment, which could have adverse effects such as late fees. Regardless of how you prefer to manage your bills, paying in full will ultimately reduce the amount of insurance payments you make each year. Plus, having fewer monthly bills could help you allocate funds throughout the year for when it’s time to renew.
2. Potential Savings
Most major carriers will offer a “paid in full” discount that rewards policyholders who can pay their total premium upfront. Not only will this help you get the best deal on your car insurance rate, but it will also free you from remembering to pay your bill.
Even if your insurer does not offer a pay-in-full discount, you can still save in the long run by paying in full. That’s because insurance companies may charge you various fees—such as monthly installment fees—for splitting up your premium payments. Although the fees may seem small on a monthly scale, they can quickly add up in a year.
3. Locking in Your Rates
When you pay your annual insurance premium in full, you ensure that your rates won’t increase* for the length of your term, assuming you don’t add a car or make other changes. This may be a favorable option for young drivers or parents of young drivers as it limits the amount of potential rate increases per year. For example, if you can secure an annual policy and pay in full, you don’t have to worry about a potential increase six months later as you would if you purchase a traditional 6-month policy.
*Although your rate will not increase during your term, filing a claim could result in increased rates at renewal.
What to Consider When Paying for Car Insurance in Full
Although there are advantages to paying your car insurance premium upfront, there are some drawbacks that you may want to consider.
- Ability to shop rates: Paying in full is a great way to lock in your rates for the duration of your term, but it could affect your ability to switch carriers or take advantage of lower rates from another insurer. Although you can still cancel in most situations (after settling any cancellation fees), getting a refund may take longer than if you were on a monthly payment schedule.
- Amount saved: As mentioned, some insurers may offer discounted rates for policyholders who are able to pay their premiums in full. However, keep in mind that any discounts offered can vary significantly depending on your insurer. For example, if the amount saved is less than $100, paying your premium in full may not be worth the added financial burden.
- 6-month vs. 12-month policies: Although it is possible to find 12-month policies, 6-month policies are the industry standard. Even if an insurer offers annual term lengths, it isn’t guaranteed that you’ll receive an incentive for paying your premium in full.
- Greater financial strain: Paying in full will require you to settle your insurance bill at the beginning of your policy. Although possible, this may cause financial strain depending on your income and current standing. Monthly payments can help offset the impact of a large purchase.
Find Other Ways to Save By Speaking with an Insurance Specialist
Even if you can’t pay for your insurance in full, you can lower your premium in other ways. Whether through additional car insurance discounts, regularly comparing rates, or adjusting coverage limits, AIS can help. We have over 55 years of experience assisting our customers through the insurance marketplace, helping them find and compare quotes from our network of trusted insurance partners. If you’d like to learn more about finding affordable rates or have additional insurance questions, call us at (888) 772-4247 to speak with a licensed agent.
The information in this article is obtained from various sources and offered for educational purposes only. Furthermore, it should not replace the advice of a qualified professional. The definitions, terms, and coverage in a given policy may be different than those suggested here. No warranty or appropriateness for a specific purpose is expressed or implied.