Should You Pay Car Insurance by the Month?

Having a car is essential to functioning in today’s world. Unfortunately, a number of expenses come with owning a vehicle. One of the biggest of these is car insurance. Many people pay for their insurance every year, forking over the entire amount to their insurance provider in exchange for coverage until the next payment. It’s a smart move because it can save the $50 or so charged by car insurance companies for installment payments. However, this can be extremely hard on the pocketbooks of many car owners. For them, paying by the month seems like a better financial option. Before you decide to go the monthly route, make sure you know the downside.

Why Companies Charge Monthly Payment Fees

Monthly payments can be more expensive in the end because a customer who pays by the month multiplies the burden he or she places on the accounting staff 12-fold. Instead of processing a single payment, the staff must now process 12. A large number of incoming monthly premiums dramatically increases the labor required by the accounting department, which means the company must hire more workers. Those extra salaries are paid, in the end, by the customer.

Monthly payments also create reduced cash flow for car insurance companies, which hurts their investments. For example, instead of having $1,200 to invest for an entire 12 months, a provider receiving monthly payments will only have one hundred dollars to invest during the first month, two hundred the next, and so on. Companies compensate for lower investment returns by increasing premiums.

Why People Pay Monthly

The reason that many people opt to pay their insurance premiums only a month at a time is usually financial. Most drivers simply do not have enough extra money in the bank to pay a full year in advance, so they need to spread it out. Unfortunately, this means that unless their company accepts direct deposit monthly payments in exchange for waiving the fee, customers are paying a monthly installment fee, adding to the cost of their insurance.

Escape the Trap of Monthly Payments

Although it will be difficult, it’s best to tough it out, give up some wants and stick with your needs to save up enough money to pay your car insurance premium in full. You should be able to save enough to pay the full policy period premium…after all; it’s cheaper than paying monthly. If you can afford the more expensive monthly payments, you can afford the cheaper one-year payment.

Another option is to choose a six-month policy, instead, cutting the lump sum needed in half. Once you get ahead of your car insurance payment, you’ll enjoy better cash flow and a little extra pocket money. Eventually, you should be able to save enough money so you can pay the policy in full every year. Don’t forget to shop around for car insurance quotes every six months, whether you are paid in full or not. It’s the best way to be certain you’re always getting the best rate, making it even easier to keep up with car insurance payments.

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