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Car insurance coverage is commonly sold in six-month policy periods although you can sometimes find three-month and 12-month plans. Typically, your insurer will offer you the option to pay the entire insurance premium up front or monthly for the duration of the coverage. Which option should you choose?
Monthly car insurance payments
Depending on your driving record, age, credit history, address and several other factors, insurance premiums can run from several hundred dollars to over $1,000. Coming up with the total amount all at once can be difficult. This is why many people choose to pay a smaller, monthly car insurance bill.
In addition to being more manageable, paying monthly also works out in your favor if you switch insurers or move. In either of those scenarios, you’ll get a new policy. If you’ve paid up front, and you’re not at the end of the term, you’ll have to wait for the insurer to send you a check for the unused portion of your premium. If you were paying monthly, that money would still be in your pocket.
Paying for car insurance all at once
Your other option is to pay for car insurance coverage up front. If you’re in a position to do this, it can have several benefits. For one thing, you won’t risk forgetting to pay a monthly bill. If you’ve missed monthly payments on other utilities and services, this is something to consider. Not only will missed payments reflect poorly on your credit rating, but they could also lead to the cancellation of your insurance. Once your insurance is canceled, getting another policy may be difficult and perhaps more costly.
Paying for car insurance all at once may also have some financial benefits. You’ll avoid paying a monthly processing fee that some insurers charge. This fee can be between $3 and $10 per month, so you could save $18-$60 over the course of a six-month policy. Also, some insurers may offer a discount for paying up front – be sure to ask when you sign up.
In the end, your choice of car insurance payment doesn’t affect your policy. For example, just because you pay monthly doesn’t mean your coverage is month-to-month. The real decision is financial: What makes the most sense for your wallet? Keep this in mind when you get auto insurance quotes so you can be an informed consumer.