Sticker shock can result from having to pay your first car insurance premium every year. Many insurance companies offer the option of paying your premium monthly. It may be a good option, but it doesn’t necessarily make sense for everyone. Here are the pros and cons to paying your auto insurance monthly.
First, people tend to manage their finances using a monthly budget. This makes it easier to add a car insurance amount so you are not subtracting your income incorrectly. Although it can be difficult to remember to save for large payments, paying smaller amounts each month can often make it easier to manage the monthly payment. This will give you more liquidity monthly. You may have difficulty finding the money you need to pay the monthly payment if you had been saving for it but not putting it away. This could cause undue stress and a loss of liquidity. This has the downside that you will need to file your monthly statements, and then write the monthly check.
There are two options: you can have automatic payments initiated by your insurance company or your bank through an automatic bill payment system. You don’t need to worry about it being sent on time. Most insurance companies offer the option of switching to electronic statements. This means that you don’t have to worry about opening or filing paper statements.
This argument has a con. Some companies may charge a small monthly fee to process your payments. You will need to make sure you compare these charges when searching for auto insurance.
This brings us to the second benefit of paying monthly for your car insurance: the flexibility to change insurers as and when you need them. Many people start with one company after they marry and don’t think twice about switching to another. Auto insurance companies are trying to hold onto a greater share of the market, particularly in this market. To lure you to their company, there will be some companies that offer automatic payments without any fees. Some will offer the same coverage but with lower premiums. You may be able find lower auto insurance if you shop around.
If you are looking to change car insurance companies, and have paid annually, you will likely need to wait several weeks before a check is sent. This will refund you the pro-rated premium paid. You will need to pay an initial payment to the new company. While you wait for the check, this could seem quite expensive. A monthly schedule allows you to change companies more easily.
Because everyone has different needs you can decide whether monthly or yearly car insurance is best for you.
