Auto Insurance- Why Paying Monthly is not a Good Idea

We all know why people pay their car insurance premiums monthly.  It’s easier on a tight budget.   Most people don’t have enough money for an upfront payment for 12, 6 or even 3 months of auto insurance.

Monthly insurance is also easier to cancel, and makes it easier to switch agents, but it’s not always the best option when paying for car insurance.  There are many fees associated with paying a monthly insurance premium, and if you miss a check, you’re car insurance is automatically cancelled until you reinstate it.

Less Budgeting after the Insurance Is Paid

A monthly payment may be easier to afford, but once the insurance is paid for 6 or 12 months, you can essentially forget about it and save the extra money.  You’ll no longer have to budget for your auto insurance.  It’s already paid, and therefore frees up money for the duration of the policy.  It’s a great way to lower overall monthly bills.


Paying an insurance policy up front is also cheaper.  Many insurance agencies require a deposit when you start your plan on a monthly basis, and they charge monthly service fees.  These can range from a $1 a month to several dollars a month and adds up over the life of the policy.  A deposit can be as much as the first month’s premium.

Neither of these fees is incurred when you pay your entire insurance policy up front.  It makes the overall cost of the policy cheaper.  In the best-case scenarios, you could save as much as $50 in service fees on your policy by paying for the entire thing up front.  That takes a $350 policy down to $300.  When paying the entire policy, you actually don’t have to come up with your monthly payment multiplied by the number of months on the policy.  It’ll be less than that.


Paying for yearly insurance can be a hassle when you wish to change automotive insurers.  However, if you cancel your policy before the due date, you’ll actually receive money back.  Once you get that “extra” money, you can apply it to your new insurance policy.  It’s like receiving a windfall when you need it most, or like getting an instant discount on your next automotive insurance policy.

Insurance Lapses

Insurance lapses are more common with monthly payment plans that with a premium that’s paid entirely up front.  This is because many people forget to make the payment especially if they’re manually writing the checks.  It could also happen if the individual is set up for automatic drafts, doesn’t have the money and isn’t signed up for overdraft protection.  If you miss a monthly payment on your automobile insurance policy, the policy is automatically cancelled.  Once the policy is cancelled, it has to be reinstated just like a new insurance policy.

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