Best Ways to Make Your Car Insurance Payment

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If you’re looking for car insurance and want to find the lowest premium, be sure to compare car insurance quotes from several providers. We recommend checking out two of our highest-rated providers: Geico and USAA.


Fractional fees are largely unregulated

Glenn Daily, a fee-only insurance adviser in New York, says the real problem lies with the lack of state regulation on fractional premium charges.

He agrees with Belth and Bach that consumers aren’t getting the information they need to weigh the cost to pay car insurance by installment.

“APR is not really appropriate when you’re trying to make a financial decision, because what you’re trying to figure out is: Can I earn enough money outside to justify paying the insurance company whatever their charge is for their fractional premium?” Daily says.

Still, he’s not convinced that full disclosure alone would prompt radically different consumer behavior.

“Consumers ignore the APR, especially on credit cards,” he says. “But at least a person should be told the interest rates on all of the fractional premium modes and be allowed to choose.”

How are car insurance premiums calculated?

Now that you know what car insurance premiums are, let’s discuss how insurers decide how much you pay for coverage. There is no standard car insurance premium for every driver. These costs are highly personalized, and each insurer calculates car insurance premiums differently. Most take into account the following when setting rates:

Making Manual Payments

You’ll need to make manual payments if you decide not to enroll in autopay. Typical options include:

  • Paying by check
  • Paying with a credit card over the phone
  • Using the company’s app to make a payment

Since your payments won’t automatically go through each month, remembering to make payments on time is crucial. Otherwise, you risk having your policy canceled for nonpayment.

To help remember, consider setting a reminder on your phone, writing the payment date on your calendar, or using a reminder service such as Memo To Me.

How APR is really calculated

Auto insurance is typically sold in six-month policies. But, for simplicity’s sake, let’s say you have a one-year policy that costs $1,000 if you pay in full, or $520 twice a year. So, the semiannual payments would cost an extra $40 per year. Dividing that into your $1,000 annual premium would seem to indicate you’re being charged 4 percent interest, right?

“Wrong, W-R-O-N-G,” says Belth. By his way of figuring, the APR on car insurance in this case is more than four times higher: 17 percent.

Here’s the way he and others see it: That $40 gives you the use of $480 for half the year. (The $480 is the $1,000 annual cost of the policy minus your first semiannual payment of $520.) Dividing $40 into $480 equals a semiannual interest rate of 8 percent. Double that, and you get an APR on car insurance that can be rounded to 17 percent.

Belth says the common miscalculation that arrives at 4 percent significantly distorts the true cost of fractional premium payments.

“The correct interest figure is going to be roughly twice that high for monthly premiums, three times that high in the case of quarterly premiums and four times that high in the case of semiannual premiums,” he says.

Should I Pay My Car Insurance in Full?

There are some benefits to paying your car insurance in full. Besides potentially receiving a discount and avoiding installment fees, you also won’t have to worry about paying the bill again until it’s time to renew your policy. This means you won’t forget to make a payment and pay late fees or have your policy canceled.

The downside is that you need to come up with the entire premium upfront. While your car insurance price depends on many factors, the average liability-only insurance with Progressive, for instance, generally ranges from $466 to $877 for a six-month term, depending on where you live. This might not work with your budget, so paying over time might be the way to go.

Common payment terms are monthly, quarterly, or semiannually. Many insurance companies allow you to pick the payment plan that works best for you. You might even be able to change your plan partway through the policy if your situation changes.

Paying your bill in full isn’t usually required, but there are situations when it might be. For instance, insurers in some states might require you to pay 100% of your premium upfront if you’ve had your policy canceled for nonpayment in the past.

When Do Automobile Insurance Premiums Increase?

Car insurance is generally sold in either six- or 12-month terms. However long your term is, your insurance costs will stay the same for that term unless you make a change to your policy, such as if you buy a new car or move to a new house.

Once your term is up, your insurance provider will reassess how much your premium should be. If you were involved in an accident or were caught speeding, your rates might increase; alternatively, if you took a safe driving course, your rate might go down.

Insurers are also constantly adjusting their models for how much to charge for insurance, so it’s possible your rate will fluctuate without any changes in your driving status at all.