Insurance companies offer various payment plans. Some will require customers to pay their premiums in 2 to 5 installments. The most popular repayment options tend to be monthly or annual plans. So, is it better to pay car insurance monthly or annually? Today, we’ll discuss the benefits of paying in full.

1)   Get to Save Money by Not Paying Installment Processing Fees

Paying monthly results in lower payments, which accommodates anyone short on the requisite funds to cater for a lump sum payment. But it comes at a cost. One annual payment tends to be cheaper since most insurers charge installment fees or administrative fees to process 12 different payments, resulting in savings of 7 to 9%. So if you’re paying $1000 for your car insurance, it may translate to savings of $90.

Call up your insurance company and get a total of 12 monthly payments, and compare it to the annual payment to see if there are any significant savings. Cost alone is not the only benefit of paying car insurance in full, and you might not consider savings of about $10 per month as a major win. So, what are other benefits of paying car insurance in full?  Here are six more benefits you stand to enjoy:

2)   Annual Upfront Discounts

Car insurance companies are glad to have their money upfront, as it means less risk on their part that someone will default on their payment. They will also spend less time processing monthly payments and following up with customers lagging behind their premiums.

Many people choose to split their annual premiums, so to encourage upfront payments, car insurance companies will use incentives, for instance, discounts between 5 to 10% for paid-in-full. The insurer may use upfront payments as an indicator when calculating the customer’s royalty and qualify them for more discounts.

3)   Reduces The Chance of the Lapse of Coverage, Cancellation, And Late Fees

Mistakes such as overspending and not planning your finances well may lead to a situation where you don’t have enough money for your monthly car insurance premium. Insurance companies cannot cancel your policy a few days after you’re late. The consumer bill of rights specifies that premiums may be made within 30 days following a case of insufficient funds or notice.

The insurance company will still charge a late payment fee if the grace period elapses. Late fees may range from $15 to $50.  There are more consequences for customers who have set up auto payments. Most Canadian banks charge between $25 to $48 for non-sufficient funds. If the bank issues an overdraft, you may have to pay interest for the overdraft protection.

The worst-case scenario is the Lapse of Coverage. It means that the insurance company has canceled or put your coverage on hold, leaving you unprotected for damages, loss, or accidents as per your plan’s particulars. When you clear the outstanding balance and renew the policy, the insurance company raises your risk profile, and they may revise your rates and charge higher premiums. Alternatively, you may continue paying the same premiums. Still, at the end of the contract period, they will increase your premiums or not give you the option to renew your policy.

4)   You Get Peace of Mind Knowing That You’re Covered for The Year

You can apply the old dictum “Do the most important things first” and pay your car insurance premiums in full. So, worrying about the ability to meet many monthly payments will become a thing of the past.

5)   Promotes Good Financial Habits

Knowing that you have a major upcoming payment in 6 or 12 months for your car insurance means you’ll start planning well in advance by increasing your savings. It’s true that most people find it hard to self-discipline and set aside money. It’s difficult to develop a saving-habit when you just have to think about making monthly payments that don’t require extensive planning. So, this is one of the indirect benefits of paying car insurance in full.

6)   You May Negotiate or Qualify for A Better Rate If You Have Poor Credit by Opting to Paying-In-Full

Insurance companies worldwide are pretty risk-averse. For instance, several reports have shown that people with poor credit scores are more likely to file for insurance claims. Customers with bad credit scores had trouble managing their past credit products, and car insurance companies may worry about their ability to honor monthly obligations. So a poor credit may result in higher premiums, but you may negate the perceived risk by asking to pay-in-full and asking for discounts.

Car insurance companies use credit score information to assess affordability and rates for Canadian residents, except Ontario, Newfoundland and Labrador.

Another strategy as you shop for the cheapest car insurance with bad credit is to obtain as many quotes as possible. Car insurance brokerages such as Surex give customers price-quotes from different issuers, allowing you to save on auto insurance.

What Are the Cons of Paying-In-Full?

Not everyone has the financial capacity to pay auto insurance premiums in full, which is why car insurance companies offer monthly payments. Prepaying the insurance premiums also locks up the person’s savings. Although they can cancel the insurance at any time for a refund, the insurer may charge a short rate penalty. For instance, due to the COVID-19 crisis and lockdowns that saw more people reducing their driving, there was a rise in the number of inquiries for car insurance cancellations. Even when you’re paying monthly, it’s usually better to consider companies that don’t charge cancellation fees.

 So, What’s the Consensus?

If you have the money, it’s better to pay-in-full and enjoy all the benefits it affords you. Car insurance companies offer customers the chance to amend their payment plans anytime, so you can look into this option for your current plan or when you renew your policy.