Should you pay your insurance premium annually or monthly?

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 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).

Read more: These are the top five factors that influence your auto insurance rate

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 have to make budget compromises in other areas of your life. But paying annually does have its benefits, including:

• Many insurers offer a discount for annual payments, typically ranging from 7% to 10%. This can result in considerable savings compared to spreading payments out over the year.
• By paying annually, you skip any administrative fees or interest charges that often come with monthly installments. Over time, this can add up to noticeable savings.
• With a one-time payment, you don’t have to worry about staying on top of monthly invoices or risking late fees due to missed payments.

Of course, there are considerations to keep in mind. Cancellation policies, for example, can vary between insurers, and some may charge a fee if you decide to cancel your policy partway through the year. It's always a good idea to review these terms carefully before making a decision.

Ultimately, paying annually can be a cost-effective choice. Just make sure that your financial situation allows for this expense without impacting other important areas of your budget. Clear planning can make the process more manageable and help you enjoy the benefits that come with this payment method.

Are there other insurance payment options?

While paying your insurance premium annually or monthly are the most common methods, some providers offer additional flexibility.

For instance, certain insurers might allow you to pay quarterly or even provide bi-monthly or custom payment schedules. It's worth asking your broker or insurer what options are available and if any additional fees are involved.

Quarterly payments, for example, divide your premium into four medium-sized installments every three months. This can be easier on your budget compared to a lump sum annual payment, but keep in mind that there may still be small administrative fees or interest charges that could increase your total cost. Be sure to ask your insurer for details to avoid unexpected expenses.

Keep in mind that deciding which insurance payment option to choose depends primarily on your finances and comfort level.

When considering your options, do a quick comparison of car insurance policies and premiums. This way, you can find the best price for the coverage you need, regardless of your billing period preference.

Read next: What is pay-as-you-go car insurance?