Annual Auto Insurance: Premium Payment Plans And Their Benefits

A premium auto insurance payment refers to the amount of money paid to an insurance company in exchange for a policy. The national average premium for a full-coverage car insurance policy in 2024 is $2,314 per year, while the minimum coverage average is $644 per year. The premium is typically paid either monthly, every six months, or annually, depending on the policy and the insurance company. Some companies may also offer a pay-in-full discount, where customers can save money by paying the full premium upfront.

Annual vs. monthly payments

When it comes to auto insurance, you may be given the option to pay your premiums annually or in monthly instalments. There are pros and cons to both, and the best option for you will depend on your personal circumstances and preferences.

Annual Payments

Paying your insurance premium annually is usually the cheapest option, as you won't have to pay any additional interest. Many companies also offer a discount for paying in full, as it is more costly for them to process 12 monthly payments. Annual payments can also be helpful for people with fluctuating or seasonal incomes, or those who struggle to keep up with regular monthly payments.

Monthly Payments

If you can't afford to pay for a full year's insurance upfront, most insurance companies will allow you to pay in monthly instalments. This option can make the cost easier to manage in the short term, especially if money is tight. However, it is usually more expensive overall, as you will be billed for this service in the form of interest charges.

Other Things to Consider

Before deciding whether to pay annually or monthly, you should look into other payment discounts you might be eligible for. For example, some companies offer discounts for electronic payments or automatic payments. It's also worth finding out how much of a discount your insurer offers for paying annually, as this may factor into your decision about which company to go with.

Discounts for paying annually

Paying your auto insurance premium annually can result in significant savings. Many insurance companies offer a discount if you pay your full policy upfront, instead of breaking it into monthly payments. This discount can range from 6% to 14% of your total premium. By paying annually, you can also save on monthly finance or service fees that some companies charge if you opt for instalments.

For example, Progressive offers a discount for paying in full, and an additional discount for setting up automatic payments from a bank account, credit card, or debit card (but this cannot be combined with the pay-in-full discount). GEICO also offers a discount for paying in full, and Allstate offers a discount of up to 10% for purchasing 10 days in advance.

In addition to these savings, paying annually can also be a more convenient option. With a single annual payment, you won't need to worry about making monthly payments, and you won't be at risk of incurring late fees or penalties for missed payments. This can be especially beneficial if you have multiple insurance policies to manage.

Payment methods

• Paying the full premium upfront by the policy's effective date. This option often helps you avoid any additional installment charges.
• Budgeting payments over time, such as paying 50% of the premium on the effective date and the remaining 50% two months later, or dividing the total premium into three or more installments due monthly.
• Setting up automatic payments or autopay through electronic funds transfer (EFT) from your checking account or debit/credit card. This ensures timely payments without the hassle of manual transactions.
• Paying through various online methods, such as writing an online check, using a debit or credit card, or linking your checking account for funds transfer.
• Mailing a personal check or money order to the insurance company's designated address.

It is important to note that some insurance companies may charge additional fees for installment payments, and these fees may vary by state. Additionally, Florida policies with only personal injury protection (PIP) and/or property damage coverage must be paid in full.

How to save on premiums

There are several ways to save on auto insurance premiums. Here are some strategies to help reduce the cost of your auto insurance:

• Shop around for insurance: Compare insurance costs from different companies and types of insurance companies. Get multiple quotes and do your research before committing to an insurer.
• Compare insurance before buying a car: Auto insurance premiums are based on factors such as the car's price, repair costs, safety record, and theft likelihood. Insurers often offer discounts for safety features and safe driving records.
• Raise your deductible: Opting for a higher deductible can significantly lower your premium costs. Ensure you have enough savings to cover the higher deductible in case of a claim.
• Reduce optional insurance on older cars: If your older car is worth less than a certain multiple of the insurance premium, consider dropping collision or comprehensive coverage. Evaluate the value of your car and the potential payout from insurance.
• Bundle your insurance: Insurers may offer discounts if you purchase multiple types of insurance, such as homeowners and auto insurance, or insure multiple vehicles with them.
• Maintain a good credit history: Establishing a solid credit history can lower your insurance costs. Many insurers use credit information to determine auto insurance policies.
• Take advantage of low-mileage discounts: Some companies offer reduced rates for motorists who drive less than the average number of miles per year or carpool to work.
• Ask about group insurance: Some insurers provide discounts for drivers who get insurance through their employers or specific groups, such as alumni associations.
• Seek out other discounts: Inquire about potential discounts, such as those offered for safe driving records, accident-free periods, or taking defensive driving courses.
• Drop unnecessary coverage: Evaluate your insurance policy to identify any duplicate or unnecessary coverage, such as rental car reimbursement or roadside assistance, that you can remove to lower your premium.
• Pay upfront: Some insurance companies offer a discount if you pay for your insurance annually or semi-annually instead of monthly installments.
• Improve your credit rating: In most states, insurers consider credit ratings when determining insurance premiums. Improving your credit score, such as by paying off debts and making timely payments, can lead to lower insurance costs.
• Review your policy regularly: Periodically review your auto insurance policy, especially after significant life changes, to ensure it meets your current needs and that you're taking advantage of all available discounts.

When premiums increase

Insurance premiums can increase for a variety of reasons, some of which are within the policyholder's control, and some of which are not.

Factors within the policyholder's control:

• Adding a new vehicle or driver to the policy.
• Increasing the amount of coverage.
• Adding optional coverages.
• Reducing deductibles on the policy.
• Traffic violations, accidents, and claims.
• Poor driving record (speeding tickets, DUIs, etc.).
• Age and demographics (teenagers and senior drivers are considered higher-risk).
• Type of vehicle (expensive, high-theft, or crash-prone cars tend to have higher premiums).
• Mileage (driving frequently and for long periods can increase the premium).
• Coverage and deductible amount (higher coverage and lower deductibles result in higher premiums).

Factors outside the policyholder's control:

• Increase in claims in the same ZIP code or area.
• Increase in car repair and replacement costs.
• Inflation and rising costs of living.
• Industry trends towards more expensive vehicle repairs and medical costs.
• Changes in address or location (moving to a densely populated city or an area with high claim rates).
• Loss of discounts (due to changes in age, driving record, etc.).

Frequently asked questions