When it comes to automotive insurance, you may find yourself faced with multiple decisions to make. Should you choose a high or low deductible plan, minimum or maximum coverage, or pay premiums monthly versus an annual lump sum? Although there is truly no wrong answer, it is important to ensure you have the best possible coverage for your budget, driving habits, and lifestyle. Your local insurance agent can guide you toward the ideal policy for your needs, but this may still leave you questioning the frequency of your payments.
Depending on your budget, it may be harder for you to pay your insurance premium up-front. However, this is still the most cost-effective way to purchase coverage. Insurers may offer what seems like a discount when you pay annually, and this absolutely benefits you as the consumer. However, what this also means is that those who elect to pay monthly or quarterly are actually being charged added fees as a penalty for delaying payments. These fees cover the insurer’s “carrying cost” of delaying collection, the back-office expense for processing multiple transactions, and the risk of consumers terminating payments earlier than expected. If you are able to pay annually without causing financial strain, this is a great option for you.
Of course, the most ideal payment schedule remains one that you can manage. Paying annually in a lump sum could leave you strained to cover other bills such as a car payment, or you could find yourself facing significant late fees if you aren’t able to make the next year’s annual payment. Should you choose to pay monthly, a major benefit is being able to maintain a consistent budget schedule without falling behind or incurring late fees.
One additional payment preference is using either a personal debit or credit card or setting up automated electronic funds transfers (EFT). When using a card to make a payment, you may run into additional card processing fees from the insurer. Some providers will offer an incentive discount should you choose to pay via an EFT, which comes directly from your bank and does not charge the insurance provider additional fees.
Overall, there is no incorrect method for making payments toward your auto insurance premium. Keep your budget in mind, and be sure to speak with your local insurance agent to obtain the appropriate level of coverage. Once you understand the policy that is best for you, you can make an informed decision regarding how often to pay. Your agent can help provide clarity around the price differences between paying monthly and annually, so contact your local insurance agent today.