When you set up your auto insurance policy, you can usually pay in full or monthly. If you pay in full, you pay the entire premium at once. If you opt for monthly payments, you pay the premium in installments over six or 12 months, depending on your insurance provider.
But there are perks and potential drawbacks for both options. Here’s what you should consider as you decide whether paying your car insurance in full makes sense. You may even be able to save money on your car insurance.
Pros of paying your car insurance in full
There are some definite perks when it comes to paying your car insurance in full. But perhaps the most important one is that it could simplify your life.
1. You won’t forget to pay the bill each month
If you’re like most people, you’re probably juggling a lot of bills each month. Even if you have a comfortable budget to accommodate all your bill payments, it can be stressful to remember when each bill is due and how much it costs.
It’s possible to set up autopay which can eliminate some of the stress, but you still have to ensure that you have enough funds in your account and pay the bill each month.
If you fail to pay, you could face a penalty or even lose your coverage. If you pay in full, there’s nothing to worry about each month.
2. You might get a discount
Some auto insurance providers offer a discount if you pay your bill in full. The discount can range from 6% to 14% of your premium.
According to a recent study, the average annual premium is $1,588. If your premium matches the average, you could save $95.28 to $218.12 with a paid-in-full discount. It’s a nice perk and you can use the savings for other purchases or bills.
If you can pay in full, it might be worth the discount. But it’s important to note that not every insurance provider offers this discount, and the size of the discount can vary, so be sure to check ahead of time.
3. You could get the money back if you switch providers
If you change providers or cancel while you have an active auto insurance policy, you will usually receive a prorated refund. You might have to pay a small fee but you’ll usually receive your money back.
That’s good news if you decide to pay in full because it means you aren’t doomed to lose money if you need to switch providers and have already paid for months in advance.
4. It’s one less task you have to do
There’s a lot on your mind — work, family, friends, and other responsibilities. It can be nice to remove a task from your to-do list.
If you pay in full, you don’t have to worry about making another bill payment each month. Instead, you can focus on other things, events, and people.
Cons of paying your car insurance in full
Like most things in life, there are some potential downsides to paying your car insurance bill in full.
1. You might forget to budget for the next payment
The average annual cost of car insurance is $1,588. If you decide to pay your bill in full, you’ll need to pay for six or 12 months of premiums at once. In other words, you might need to pay $1,588 or more.
It can be a solid financial decision if you have the cash on hand, and you might even secure an additional discount as a bonus. But if you forget to budget for the next payment, you might find yourself in a tough spot a year later.
2. It’s less of a hassle to switch providers
Your auto insurance provider will provide a prorated refund if you pay in full and switch providers while you have an active policy. But that doesn’t mean it’s not a hassle to cancel the policy, request a refund, and wait for the refund to arrive.
Some people find it easier to pay monthly and maintain flexibility. Even if it’s unlikely that you would switch providers, it can be nice to feel like you have that option.
3. You might need the money to pay your deductible
Your deductible is one of the most critical aspects of your car insurance policy since it determines how much you're responsible for paying in the event of a claim. Car insurance deductibles usually range from $100 to $2,000.
In general, your premium will be lower if you have a higher deductible. But regardless of the size of your deductible, it’s essential that you can pay for it in the event of a claim.
For some people, paying in full would require depleting a savings account that might have been used to pay the deductible. In that case, it might not make sense.
Deciding to pay your car insurance in full is a personal decision. It depends on your financial fitness, personal preferences, and how you like to spend and budget.
You’re in solid financial shape if you pay your auto insurance bill on time. From there, you can choose to move forward with either option.
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