Content of the material
- When do I pay for car insurance?
- How to lower your car insurance premium
- What causes a car insurance premium to increase?
- When Credit Comes Into Play
- Automatic Withdrawals When Paying Car Insurance in Full
- Alternatives To Month-To-Month Car Insurance
- Rideshare Insurance
- Rental Car Insurance
- Compare Companies and Their Payment Options
- Should I Pay My Car Insurance in Full?
- The APR Might Be Higher Than You Realize
- How are car insurance premiums calculated?
- Why Do Car Insurance Companies Have Longer Terms?
- The Underwriting Period
- Down Payments
- Full Premium Reduces Your Cash Flow
- Policy Length
- Six-Month Policy
- 12-Month Policy
- The Bottom Line
When do I pay for car insurance?Car insurance companies typically let you pay your premium in one of three ways: you can pay your premium month until the end of your policy term, you can pay for a six month policy at once, or you can pay for a year-long policy at once. Paying for a longer duration all at once is a cheaper option in the long run.For example, when purchasing a new policy, an auto insurance company might give you two options for how you could pay a premium for the same coverage—you could pay $100 on a monthly basis, or you could pay $1,100 as one annual payment and save some on your premium.MORE: How to lower car insurance premiums
How to lower your car insurance premium
If you’re trying to lower your car insurance premium, there are several strategies you can use:
- Drop unnecessary coverage: Reducing your coverage will reduce your premium. With older vehicles, it may not be worth maintaining comprehensive and collision insurance policies. The general rule of thumb is to reduce these types of coverage when your annual premium exceeds 10% of your vehicle’s total value. Keep in mind that you will need to maintain your state’s minimum insurance requirements to drive legally, so you shouldn’t reduce your bodily injury or property damage liability insurance or other required policies.
- Compare rates: Shop around and compare auto insurance quotes from multiple providers. You may find that you can save a significant amount by switching insurers.
- Take a driver safety course: Many insurers offer discounts for completing a state-approved driver safety program. These courses are typically six or eight hours, and some states mandate that insurers offer discounts if you complete one.
- Choose usage-based insurance, if it could benefit you: Several insurers offer usage-based discount programs. These are typically run through an app that tracks things like your braking distance, average speed and driving times.
- Bundle your policies: If you have homeowners’ insurance, you can usually get car insurance discounts by purchasing both home and auto policies from the same insurer.
- Pay in advance: Paying your car insurance premium upfront results in a discount with the majority of insurers.
What causes a car insurance premium to increase?
In some cases, you may find that your car insurance premium increases when you renew your coverage. This typically happens after you file a claim where you were at fault for a collision. It can also happen if you add another driver to your policy or if you receive a speeding ticket.
When Credit Comes Into Play
Because some car insurance companies consider your car insurance premium to be a loan you are paying back monthly, your credit could play a role in qualifying for car insurance. Your monthly payment could be at least in part based on your credit score. You may also be denied a policy for monthly payments if your credit score is too low, especially if you have a lot of collections on your credit report.
Automatic Withdrawals When Paying Car Insurance in Full
Another downside to paying your car insurance monthly instead of in full is that many car insurance companies require you to use a checking account to pay your monthly premiums. These companies require you to use automatic withdrawals from a valid checking account. This can be difficult to manage if you are on a tight budget or don’t get paid at the same time each month. It can also mean that if you don’t have a traditional checking account with checks, you are unable to pay your car insurance on a monthly basis.
Alternatives To Month-To-Month Car Insurance
Depending on your situation, there are often better solutions to getting temporary car insurance coverage. Some alternatives to consider include usage-based car insurance, rideshare insurance, and rental car insurance. You could also reach out to your insurance company to see if they offer a six-month policy in place of the traditional twelve-month policy.
As more and more freelancers build careers as rideshare drivers with companies like Uber and Lyft, or food delivery drivers with companies like DoorDash, many look for month-to-month auto insurance to supplement plans offered by these companies.
Padding your company-provided insurance is a good bet, in our opinion. Many major car insurance companies offer rideshare insurance for the needs of the modern gig economy. You should note that you must alert your insurance company if you plan to drive your vehicle for commercial purposes. If not, your personal car insurance plan will most likely not cover the cost of accidents the moment you’re available for business.
If you plan to pick up some side work or start a new ridesharing business, speak to your auto insurance company about add-ons to your current plan. You may also be able to pay monthly for a business auto insurance policy that does not have cancellation fees and offers refunds for cancellations before the term has ended.
Rental Car Insurance
How about month-to-month car insurance for a long-term or short-term car rental? If you head to a rental booth at the airport to kick off your vacation, car rental insurance in the U.S. typically includes:
- BI and PD liability coverage
- Personal accident insurance
- Collision damage waiver
- Personal effects coverage
Before jumping into supplementary plans, consider if you really need it. Many credit card companies actually offer some form of extra rental car insurance when you use the card to book the rental, so you might already be covered.
You can also check if your normal car insurance plan extends to rental car coverage within the U.S. This can change based on the value of the car you rent, however. If you choose a car with a much higher value than your vehicle back home, your policy may not offer enough coverage.
Compare Companies and Their Payment Options
It is important to compare different companies when choosing a car insurance company. Since you are giving the company your money in advance, you want to be sure you are making the right decision.
Many companies have many different options for payment and payment discounts.
Choosing the right company for you will make the difference in the amount you pay upfront so remember to choose wisely! Taking your time and compare at least three different companies before making a final decision for your car insurance needs.
Compare companies side-by-side to see how much you could save on car insurance.
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.
The APR Might Be Higher Than You Realize
Insurance companies also charge you interest for choosing installment payments. They consider it a loan. However, most consumers don’t realize how much they’re actually paying.
For instance, a policy might cost $1,000 if you pay annually, or you could pay two $520 payments instead. You decide to pay the extra $40 thinking that’s 4 percent of $1,000 – not bad, considering the convenience. However, you’re actually paying much more.
The insurance company receives your first payment of $520, and then charges you $40 interest on the balance of $480. That $40 interest on $480 is an APR of 8.33% ($40/$480) for half a year, or 16.7% annually. That’s higher than many credit cards and certainly higher than a personal loan. Use this calculator to determine how much you’re paying now.
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:
Why Do Car Insurance Companies Have Longer Terms?
Car insurance plans do not lend themselves to short-term or month-to-month car coverage. This is due to two main reasons:
- The underwriting period
- Down payments
The Underwriting Period
The underwriting period is a stage when an insurance company analyzes the risk of insuring your car and your driving. Companies consider a combination of factors like your age, credit history, driving record, zip code, and vehicle details to determine your car insurance rate.
If you need car insurance for just a few days or for a monthly car insurance plan, it doesn’t make sense for you or the company to go through this in-depth process.
All car insurance companies require some money down to start your contract. Some request a percentage of your annual or six-month premium, while others ask for one month upfront as a down payment. You may also have the chance to pay your insurance premium in full for a discount.
One way you can get month-to-month car insurance is to sign up for a longer plan that does not include a cancellation fee. Most companies even offer prorated refunds by the day. So if you cancel your plan halfway through the month, you could receive the amount of money already paid that was not used as a refund. However, this is not recommended as it could lead to more expensive insurance rates down the road.
Full Premium Reduces Your Cash Flow
When you pay your full premium, you’re paying for the months ahead. Its money out of your pocket and into the coffers of the insurance company before you drive and before you could file a claim.
While you may not earn much interest on your money if it stays in your bank account, when you spend your money to pay your full insurance premium you may not have an emergency fund when you need it. However, if you’re sitting comfortably, paying your full premium will save you money in the long run.
The policy term refers to the length of time covered by the policy. You typically have two options here, as well: one year or six months. Every term has a clear start and end date, which will be printed on your proof of insurance, according to Car Insurance Comparison.
Most major auto insurance companies provide coverage for six-month policy terms. This means you’ll pay twice a year, at the beginning of each new term. This allows for easy changes to the policy on the policyholder’s end and also allows the carrier to raise premiums twice a year. It seems to be a win-win. says you could even use the six-month renewal point to check out other policies for a lower cost.
Some companies also offer a 12-month plan length. The nice thing about a longer term is the locked-in rate. Your carrier can’t raise your premium in the middle of your coverage year, so you could avoid higher costs. Keep in mind that the following changes could still lead to premium increases mid-term:
- Changing or adding vehicles.
- Adding a driver.
- Increasing coverage.
Another benefit of the 12-month term length is the one-time assessment. When you’re on a six-month plan, the company reviews your driving habits and citations twice a year and could raise your costs. The delayed underwriting you enjoy from a longer term could save you money.
The Bottom Line
You need to pay your premiums to keep your car insurance policy active. While you can often get a discount for paying in full, a payment plan might fit better in your budget. Once you select your plan, decide how you’ll pay. No matter which payment method you pick, send your payment in on time to avoid losing your insurance.