Auto Insurance Premiums: Monthly Or Yearly Payment Plans

Auto insurance premiums are the amount you pay to your insurance provider in exchange for coverage for yourself and your vehicle. These premiums are usually paid monthly, every six months, or annually. The length of time an auto insurance policy is in effect is called the policy term. While temporary car insurance does not exist, most insurers offer at least two term lengths: six months and 12 months. A six-month car insurance policy comes up for renewal twice a year, while a 12-month policy renews annually.

Six-month vs. 12-month policies

When choosing between a six-month and a 12-month auto insurance policy, you should consider whether you value flexibility or locked-in rates.

Six-month policies

Six-month car insurance policies are more common than 12-month policies. They are offered by most major auto insurance companies and are typically reviewed twice a year. This means that your premium could increase or decrease more frequently.

Pros of six-month policies

• Flexibility: Six-month policies allow you to change your coverage more frequently.
• Frequent rate revisions: If you have a good driving record, you may benefit from more frequent rate revisions, as you could secure lower rates sooner.
• Driving activity is re-evaluated more frequently: High-risk drivers may benefit from more frequent policy reviews.
• Paying in full may be more accessible: It may be easier to pay for a six-month policy in full, which can lead to a discount.

Cons of six-month policies

• More frequent premium recalculations: Your premium could fluctuate more often.
• Potential to forget renewal dates: Six-month policies renew twice a year, so you may be more likely to forget to pay.
• Possible missed discounts: You may lose access to certain discounts more quickly.

12-month policies

Twelve-month policies are less common, and some major insurance companies do not offer them. They are reviewed annually, which means that your premium will remain the same for a full year.

Pros of 12-month policies

• Less frequent premium fluctuations: Your premium will remain the same for a full year.
• May be easier to remember renewal dates: As there is only one renewal date per year, you may be more likely to remember it.
• May not need to requalify for discounts as often: You may be able to cut down on the amount of paperwork you need to send to your insurance carrier.

Cons of 12-month policies

• Less policy flexibility: You may need to wait longer to cancel your policy without incurring a fee.
• Driving activity isn't re-evaluated as frequently: Surcharges for accidents and tickets are not removed as often.
• Harder to pay in full: It may be more difficult to pay for a full year's worth of insurance upfront.

Pros and cons of each

Auto insurance policies typically last for six or 12 months, with six-month policies being the industry standard. There are pros and cons to both options. Here is a detailed breakdown:

6-Month Auto Insurance Policy

Pros:

• Policy flexibility: Although you can switch insurance companies at any time, some providers may charge a cancellation fee if you end your policy before the term expires. With a six-month policy, you wouldn't have to wait long for the renewal period, giving you more flexibility to change providers.
• Driving activity is re-evaluated more frequently: A six-month policy may benefit high-risk drivers as tickets or accidents drop off your driving record after three to five years. With each policy renewal, your insurance company may remove any surcharges that no longer apply.
• Paying in full may be more accessible: Some insurance carriers offer discounts for customers who pay their policy in full upfront instead of in monthly instalments. While this option is available for both six and 12-month policies, paying for a full year upfront may not be feasible for your budget. A six-month policy could make this discount more accessible.

Cons:

• More frequent premium recalculations: A 12-month policy usually maintains a steady cost for the whole year unless you make changes. However, a six-month policy that renews twice a year may lead to more frequent premium fluctuations.
• Potential to forget renewal dates: A 12-month policy gives you the option to pay the entire expense upfront for the year. With a six-month policy, you might be more likely to forget the renewal dates (which occur twice a year) and potentially miss a payment, causing a lapse in coverage.
• Possible missed discounts: For example, a new policyholder discount may provide more savings over a 12-month period than a six-month period.

12-Month Auto Insurance Policy

Pros:

• Less frequent premium fluctuations: If you cause an accident during your policy term that results in a surcharge, you'll have more time surcharge-free on a 12-month policy since renewals are less frequent.
• Easier to remember renewal dates: As a 12-month policy has half as many renewal dates as a six-month policy, you're less likely to forget and miss a payment. This is especially beneficial for policyholders who pay in full instead of using auto-pay.
• May not need to requalify for discounts as often: You may be required to periodically provide proof to maintain certain discounts. Although your insurance company probably won't need this at every renewal, it will likely coincide with a renewal date. As 12-month policies renew less frequently, you may be able to reduce the frequency of sending paperwork to your carrier.

Cons:

• Less policy flexibility: Some companies charge an early cancellation fee if you terminate your policy before the term ends. If you want to cancel and avoid this fee, you'll have to wait longer for the renewal date with a 12-month policy.
• Driving activity isn't re-evaluated as frequently: As a 12-month policy renews less often, surcharges for accidents and tickets are removed less often. For instance, if an accident surcharge is eligible to be removed in June but your policy renews in December, you'll have to wait.
• Harder to pay in full: Although the premium may not differ significantly from a six-month policy, paying for the entire year's insurance upfront may be challenging for your budget.

The choice between a six-month and a 12-month auto insurance policy depends on your specific needs and circumstances. If you have a clean driving record and no recent claims or violations, a six-month policy could be a good option, offering the flexibility to cancel more frequently without fees and the potential for quicker reductions in surcharges. On the other hand, a 12-month policy locks in your rate for a full year, avoiding the risk of twice-yearly premium increases.

Cost differences

Auto insurance premiums are calculated based on various factors, and the costs can vary significantly depending on the chosen coverage, vehicle type, driving record, age, gender, and location, among other factors. Here are some key aspects to consider when understanding the cost differences in auto insurance premiums:

Policy Length: When choosing between a six-month and a 12-month auto insurance policy, there are trade-offs between flexibility and locked-in rates. A six-month policy offers more flexibility, allowing rates to decrease more quickly if your driving record improves or you haven't filed any claims. On the other hand, a 12-month policy provides locked-in rates for the entire year, making budgeting simpler.

Coverage Level: The level of coverage you choose will impact your premium. Liability-only insurance, which meets the minimum legal requirements, tends to be more affordable than full coverage, which includes collision and comprehensive insurance. Full coverage is more expensive due to the additional protection it offers for damage to your vehicle.

Vehicle Type: The make, model, and value of your vehicle play a significant role in determining insurance premiums. More expensive, luxury, or sports cars tend to have higher premiums due to the higher cost of repairs or replacement. On the other hand, safer, cheaper cars often have lower premiums because they are less likely to be involved in accidents and have cheaper replacement parts.

Driving Record: Your driving history is a crucial factor in calculating premiums. At-fault accidents, speeding tickets, and other traffic violations will typically increase your premium. A clean driving record with no incidents will generally result in lower rates.

Age and Gender: Age and gender influence insurance premiums, with younger drivers, especially teenagers, often paying higher premiums due to their higher risk of accidents. Seniors may also face higher premiums due to increased risks associated with advanced age. In some states, gender-based pricing is prohibited, while in others, men tend to pay more than women because they are statistically more likely to engage in riskier driving behaviours.

Location: Where you live can impact your premium due to differences in accident rates, theft rates, population density, and state regulations. Urban areas with higher collision risks and theft probabilities tend to have higher insurance rates. Additionally, each state has different insurance regulations and minimum coverage requirements, affecting the overall cost.

Credit Score: In states where credit scores are permitted to influence insurance rates, individuals with poor credit may pay higher premiums. Insurers view drivers with poor credit as more likely to file claims, leading to higher premiums.

Deductible Amount: The deductible is the amount you pay out of pocket before your insurance coverage kicks in. Choosing a higher deductible typically results in a lower premium, while a lower deductible leads to a higher premium.

Discounts: Various discounts are available from insurance providers, including homeowner discounts, military discounts, multiple policy discounts, and pay-in-full discounts. Taking advantage of these discounts can help lower your overall premium.

When comparing auto insurance premiums, it's essential to consider your specific circumstances, including your driving history, vehicle type, location, and desired coverage level. By understanding these factors, you can make informed decisions about the cost differences and choose the policy that best suits your needs and budget.

How to pay

Auto insurance premiums are usually paid either monthly, every six months, or annually. The majority of insurance companies allow customers to pay in the following ways:

• By mailing in a check
• Online through the insurer's website
• Online through the insurer's smartphone app
• Automatically by setting up autopay

If you pay online, you can enter your credit or debit card information or link your checking account for a funds transfer. If your insurance company offers banking services, your insurance and checking account can be accessed using the same login information.

Most insurers allow you to set up automatic payments so that money is drafted from your bank account each month, and you never miss a payment. You might be able to get a premium discount if you pay your entire annual premium upfront or enroll in autopay.

How to Lower Your Premium

You can lower your premium by:

• Dropping unnecessary coverage: With older vehicles, it may not be worth maintaining comprehensive and collision insurance policies.
• Comparing rates: Shop around and compare auto insurance quotes from multiple providers.
• Taking a driver safety course: Many insurers offer discounts for completing a state-approved driver safety program.
• Choosing usage-based insurance: Several insurers offer usage-based discount programs.
• Bundling your policies: If you have homeowners' or renters insurance, you can usually get car insurance discounts by purchasing both home and auto policies from the same insurer.
• Paying in advance: Paying your car insurance premium upfront results in a discount with the majority of insurers.

When premiums increase

Auto insurance premiums are usually paid monthly, every six months, or annually. While premiums typically remain the same within the term of the policy, they can increase when the term ends and the insurance company revises the premium.

Adding Vehicles, Drivers, or Coverage

If you add a vehicle, another driver, or increase your coverage limits, your premium will likely increase. This is because there is more risk for the insurance company to cover, and they will charge you more to cover that risk.

Driving Record

Your driving record is a significant factor in determining your premium. If you have a history of traffic violations, accidents, or claims, your premium will likely increase. This is because you are seen as a riskier driver, and the insurance company will charge you more to cover that risk. Even if you weren't at fault in an accident, your premium may still increase, depending on your insurance company's rating plan.

Rate Level Increase

Rate level increases often occur due to industry trends towards more expensive vehicle repairs and medical costs. As repair and medical costs rise, insurance companies pass those costs on to their customers in the form of higher premiums.

Individual Risk Factors

Even small changes in your individual risk factors can result in a higher premium. For example, if you move to a more densely populated city, your premium may increase due to the higher risk of collisions, theft, and other harm.

Claims and Accidents

Filing a claim or being involved in an accident can increase your premium, especially if you were at fault. This is because the insurance company sees you as a riskier driver and will charge you more to cover the increased risk.

Industry Trends

Insurance companies may also increase premiums due to industry trends, such as rising repair and medical costs or increases in the number of claims in your area. These factors can affect the overall cost of providing insurance coverage, which is then passed on to customers.

Frequently asked questions