This article has been updated from a previous version.
Whenever you buy a car insurance or home insurance policy your provider will typically offer you the option to pay the premium annually in full or in smaller, monthly installments. This is true even if you purchase a bundled insurance package, where you get both policies from the same provider and receive what’s known as a multiline or multi-policy discount.
So, which payment option should you choose?
For customers who prefer making a full payment annually, some insurers will offer a discount on the policy of around 7% for doing so. For others, monthly payments over the course of the year might be more comfortable, as payments will be in more manageable increments. Ultimately, there is no right or wrong answer here. What you choose comes down to what you can afford comfortably.
However, there are benefits and drawbacks to both options.
What are the benefits of paying monthly premiums?
Many Canadians opt to pay their insurance bill in monthly installments. Choosing to do so, though, means your provider will not offer you the discount you might have received for paying in one fell swoop. Moreover, they’ll likely also tack on a small, monthly installment fee.
So, yes, you’ll pay a little more throughout the year by opting for a monthly payment plan. But there are a few benefits to taking this route, including:
- Choosing to pay the premium in 12 monthly installments is easier on your budget.
- If you’re planning to switch to another insurance provider before your policy is due for renewal, it may be more convenient and simpler to make that change.
But there are potential downsides, too.
For instance, if you miss a monthly payment you may get charged a late fee by your provider. Moreover, missing payments could lead to your policy lapsing, and the insurer may up your premium at renewal (your insurance history is one of the things carriers look at when determining what your premium should be).
What are the benefits of paying annual premiums?
Paying your premium once a year requires having thousands of dollars at the ready to afford it — after all, you don’t want to leave yourself short of cash or having to make budget compromises in other areas of your life. But paying annually does have its benefits, including:
- Your insurer may offer you a discount of around 7% on the total cost, therefore, you’ll save funds on the total cost of your policy.
- You won’t have to pay any administration fees associated with paying in monthly installments.
- You don’t need to worry about making monthly payments on time to avoid being charged a late fee.
However, paying annually also means if you decide at some point during the year you want to cancel your existing policy and switch to another insurer, you may be charged a cancellation fee.
Are there other insurance payment options?
Although paying your provider either annually or monthly are the most common options, some insurance companies will allow you to pay your premium quarterly instead. Breaking the premium payments up into four medium-sized installments every three months might be better on some peoples’ budgets. There may still be a small administration fee involved, though, so talk to your broker or insurer and find out if there is and how much.
Deciding which insurance payment option to go with depends on your finances and level of comfort first and foremost. When mulling it over, do a quick comparison of car insurance policies and premiums. That way, you’ll be able to find the best price for the coverage you need — how matter how you set your billing periods.
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