Whenever you buy car insurance or home insurance, your insurance provider will usually offer you two options to pay your premiums: pay off your annual premium in full or in monthly installments. You’re not alone if you’ve ever wondered which is the best method to pay your premiums. For some, the idea of monthly payments that align with your mortgage or rent schedule is the easiest to handle financially. For others, 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 break down the pros and cons of annual versus monthly insurance payments for your car and home premiums.
Monthly car or home insurance payments are the most common method. This method involves customers paying small installments towards their overall annual fee each month. This method of payment means that customers can set aside money for payments as part of their monthly budget, and it is great for people who live paycheck to paycheck 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:
- Paying the premium in 12 monthly installments is easier on your budget: Like most people, you probably have a fairly standard monthly income. 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.
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.
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.
- 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.
- It is an expensive lump sum: While paying annually saves you money, it can be a lot for someone to pay for in one go.
- If you want to cancel early, you will most likely lose money. Another downside of paying upfront is that if you ever decide to cancel your policy, you will not only risk losing money but also be subject to a cancellation fee.
Learn more about insurance cancellation fees and the different types.
What are my other options?
Although annual vs. monthly insurance payments are the most common option, 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 when making a lump sum payment isn’t remarkable by comparison, then perhaps look for other ways to save while paying monthly.
Discounts and Insurance
If you’re looking to lower the cost of your insurance premiums, never hesitate to inquire about discounts! You may be surprised by what discounts you could potentially be eligible for! Below are some common insurance discounts:
- 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.
Remember, if you’re in the market for home or auto 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 are right for you. Contact us or request a home insurance quote today!
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