Car Insurance Information

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By: Kade Phillips, contributing writer at Kanetix.com.

Most auto insurers will give you the option to pay for coverage through monthly premiums rather than forcing you to make a single large, upfront payment. To decide which option is better, you'll need to carefully review the advantages versus the potential drawbacks in light of your personal circumstances. Depending on your financial situation, need for planning flexibility, and other factors, making the wrong choice can have long-term consequences.

This article will offer a road map for navigating your auto insurance payment schedule. We'll provide an overview of the pros and cons associated with paying your premiums monthly.

Pro: Easier On Your Monthly Budget
If you're like most people, you manage your finances with a monthly budget. Your income is offset by your bills; funds that are left over are allocated toward entertainment, investments, and other outflows. Under this budgeting system, making a large upfront payment for year-round coverage may prove unmanageable. This is especially true in a sluggish economy.

Monthly premiums can fit seamlessly into your budget. The payments represent an expected outflow that is already allocated in your financial plan.

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Con: It's Inconvenient
Paying your auto insurance premiums on a monthly schedule increases the paperwork you'll be forced to manage. Not only will you need to open your statements and file them for future reference, but you'll also need to write a monthly check.

On the other hand, many auto insurance companies can help you establish an automatic payment plan. The funds are drafted directly from your checking account on a predefined schedule. That reduces your paperwork and eliminates the need to remember to write a check each month.

Pro: Provides More Liquidity
If funds are limited, there's value in having the option to hold onto your money for as long as possible. Monthly car insurance payments provide valuable liquidity. For example, suppose part of your monthly budget is allocated toward making a small investment into mutual funds. If you were forced to pay several hundreds of dollars upfront for an annual car insurance policy, you might lose the liquidity necessary to make your monthly investments.

Con: Includes Processing Fees
Most auto insurers will charge a small monthly fee to process your payments each month. These processing fees are typically small; it's not uncommon for them to be as low as a few dollars each month.

Over the course of a year, the fees can add up to $50 or more depending on your policy. While some financial planning experts suggest that paying such fees is an ill-advised way to spend money, it depends largely on your personal circumstances. If funds are unlimited, the experts are correct. Then again, if you value liquidity, paying the small fee may be worthwhile.

Pro: More Flexibility
Making monthly payments gives you far more flexibility to change car insurers than would be the case if you were to pay upfront. This is more important than many policyholders realize.

Car insurance companies compete aggressively for your business. A key lever they use is lower premiums. This is one of the reasons you should periodically shop for a new policy. Even if you're satisfied with your current auto insurer, you might find a policy that offers more attractive terms. For example, you may discover the same level of coverage with lower rates at a different insurer. Or, you might uncover better coverage for the same rate you're currently paying.

If you cancel your car insurance policy after paying upfront, you'll receive a pro-rated balance from your current insurer. The problem is, you'll need to wait for the check, which can take weeks. Given that you might need to make a small down payment on your new policy, waiting for funds might become problematic. Canceling and switching providers is much easier when you're paying your premiums monthly.

Choosing The Right Payment Schedule
You are the only person who can decide whether paying for your auto insurance on a monthly schedule is appropriate for your situation. Review your monthly budget. Determine the value you place on liquidity. And consider the importance of being able to easily switch providers in the event you find better car insurance rates elsewhere for the coverage you need. A little upfront planning can help you avoid headaches down the road.



At Kanetix, we work hard to try to find you the cheapest car insurance rates. In about 5 minutes you can compare competing quotes and quite possibly save a whole bunch of money. Try our service today!


Disclaimer - The above description/explanation is intended as a guideline only, and is not to be interpreted as a recommendation to buy or sell any insurance products, or to provide legal or financial advice of any kind. Also, Kanetix Ltd. does not warrant or assume any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed.

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