Whenever you buy a car insurance or home insurance policy, your insurance provider will usually offer you two options to pay your premiums – pay off your annual premium in full or in monthly installments. If you’ve ever wondered which is the best method to pay your premiums, you’re not alone. For some, the idea of monthly payments that fall in line with your mortgage or rent schedule is the easiest to handle financially. For others, the idea of lessening the monthly burden by paying premiums all at once is a better fit to free up finances for unforeseen expenses that may pop up throughout the year. There is no right or wrong answer; it should come down to what you can comfortably afford. Let’s breakdown the pros and cons of annual vs. monthly insurance payments for your car and home premiums.
Paying your insurance premiums monthly
Paying your car or home insurance monthly is the most common way to go about things, and basically sees customers paying small installments towards their overall annual fee each month. This method of paying means that customers can set aside money for payments as part of their monthly budget, and is great for people who are living paycheque to paycheque, or don’t have excess savings on hand to pay one large lump sum.
Pros of paying monthly insurance payments
There are a few benefits to paying your insurance premiums monthly:
- Choosing to pay the premium in 12 monthly installments is easier on your budget: Like most people, you probably have a fairly standard income each month. This option makes it easy to set aside the premium to be paid along with your other monthly bills.
- Make a change: If you intend to switch to another insurance provider before your policy is due for renewal, it may be more convenient and simpler to make that change.
- Free up your funds: Monthly payments might also be a good choice if you have the money to pay an annual premium, but want to invest the extra money or use it for another large expense.
Cons of paying monthly insurance premiums
While monthly payments may be easier on your bank account than one large lump sum, it also has its downsides:
- Administration fee: You will have to pay an administrative fee every month, as well as the monthly premium owed.
- Late fees: If you can’t make your payments on time, you will be charged a late fee. Also, if you find yourself in this situation more than once, it can leave you paying out-of-pocket.
- Missing a payment: This can lead to your policy lapsing. Your insurer may increase you premium at renewal as a result. Your insurance history is what insurance companies use to determine what your premiums will be.
- Paying more per year: Some insurers actually use monthly payment schedules as an opportunity for profit. You may end up paying more money over 12 months than if paying the whole amount upfront.
- Lose out on discounts: If you pay monthly, you provider will not offer you a discount for alternatively paying all at once.
Paying your insurance premiums annually
In order to pay your premium once a year, you will need to afford doing so without leaving yourself short of cash or compromising your budget. Getting the bill out of the way at the beginning of the year is really helpful for people if you work seasonally, or receive a yearly bonus or tax refund. Although the idea of a lump sum payment seems daunting, it is always the least expensive option.
Pros of paying insurance premiums annually
- Discounted price: Your insurer may offer you a discount of around 7% on the total cost, therefore, you’ll save funds on the total cost of your policy. Policy holders that pay monthly cost the insurance companies more in manual processing each month.
- No administration fees: You won’t have to pay any administration fees associated with paying in monthly installments.
- No late fees: You don’t need to worry about making monthly payments on time to avoid being charged a late fee.
Cons of paying insurance premiums annually
- It is an expensive lump sum: While paying annually definitely saves you money, it can be a lot for someone to pay for in one go.
- You will most likely lose money if you want to cancel early: Another downside of paying upfront is if you ever decide you want to cancel your policy, not only do you run the risk of losing out on money, but you will also be subject to a cancellation fee.
To learn more about cancellation fees, please click here.
Other insurance payment options
Although annual vs. monthly insurance payments are the most common options, rates.ca reports that some insurance companies will allow you to pay your premium quarterly instead (four payments every three months). Breaking the premium payments up into four quarterly installments might be more feasible for you. However, there may still be a small administration fee involved. Speak with your isure broker or insurer to find out if there is one and if so, how much.
Annual vs. monthly insurance payments: What’s best for you?
Before you decide which method is right for you, remember it depends largely on your financial situation and comfort level. However, it’s important to find out how much of a discount your insurer offers for paying for one lump sum payment instead of 12 installments. If the amount of savings you reap making a lump sum payment isn’t remarkable by comparison, then perhaps look for other ways to save while paying monthly.
Looking into other payment discounts you might be eligible for is a great way to cut down your monthly premium payments:
- 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.
- Try bundling your auto and home insurance policies.
Give us a call today to speak with one of our isure representatives! We’ll help you run the numbers to see whether annual vs. monthly insurance payments is right for you.
Learn more about reducing your premiums, check out some of our articles: