How often is auto insurance paid?

When it comes to insurance payments, there are several options available to you.

In the past, insurance had to be pre-paid for a six-month or one-year term, but companies started offering monthly auto insurance rates that are easier on tight budgets.

However, taking advantage of the monthly options can lead to higher fees. Here’s what you should know about the different payment options so that you can make an informed decision.

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Determining the Policy Period

When you’re shopping for insurance, you’ll have to consider the different policy period options. Known as the policy period, this starts on a date of your choosing and can be at any time of the year.

You will have the following choices:

• Month-to-month terms that are usually reserved for high-risk drivers
• Six-month premiums that are preferred by most carriers
• One-year coverage options are available to consumers

 

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The Hidden Costs Associated with Paying Over Time

Many people choose to pay their insurance monthly or quarterly rather than paying the full amount at one time.

While most companies are happy to provide you with payment options, you should remember that these do come with some hidden costs.

Before you decide to make smaller payments throughout the year, ask your company if there are any fees associated with this option.

The insurance company may charge a little more to cover administrative costs and the assumed risk that a client may stop paying on the policy midterm.

Some companies don’t offer installment plans, but they will provide you with assistance for financing, known as a “premium financing agreement.”

If you decide to sign up for this type of plan, be sure that you understand:

• The schedule of payments
• Finance charges and annual percentage rate
• The potential consequences of a missed payment

These fees can vary widely from one company to the next. When shopping around, be sure to ask if there are any installment fees associated with paying your bill a little at a time.

You May Save by Pre-Paying

Insurance companies often offer exclusive discounts for safe drivers, certain types of vehicles, and even specific professions.

What many people don’t realize is that it’s also possible to save by paying for the policy ahead of time.

If you can afford to pay your entire premium at the beginning of the year, then this can be a smart way to save money.

You don’t even have to worry about losing money if you decide to switch carriers halfway through the year. Most companies will pro-rate the bill and send you a refund check for the remainder of the term.

Loyalty Doesn’t Always Pay

Insurance premiums can vary widely from one company to the next, and you may not be rewarded for sticking with the same company year after year.

Research shows that insurers use special software and algorithms to show how sensitive customers are to price increases.

If they think they can bump rates up slightly without losing customers, they will.

This possible price increase is one reason why you should shop around once a year. Whether you’re on a six-month or one-year policy period, it’s smart to take a look at the competition and see what they have to offer.

You just may find that another company is willing to provide you with more drastic discounts to gain your business.

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No Lapses in Coverage

Another great benefit of prepaying your auto insurance is that you won’t have to worry about a lapse in coverage. If you forget to pay your bill one month, then the premiums may rise.

However, you won’t have to worry about this if you cover the entire expense six months or even one year at a time.

Another added benefit of the annual renewal is that you’ll have that opportunity to shop around before you sign up for another term.

When you’re prepared to cover the full cost in advance, you may be able to negotiate a lower rate with the next company.

Before you sign up for any particular term, learn more about the payment options and hidden fees. If you have this information when you start shopping around, then you can make a more useful comparison.

The goal is to save money in the long run, so it’s important to consider all of the potential hidden costs, including service fees for spreading the cost out over more payments.

Enter your ZIP code in our FREE comparison tool to start your journey on saving money!

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