Paying Car Insurance Monthly or Annually – Which is Better?

You don't have to pay your car insurance every month, but you do have to stay up to date in your payments. Paying for a full year of car insurance in advance could save you $100/year. Car insurance payment options include monthly car insurance payments, payments every 6 months, or annual car insurance payments (policy paid in full). Learn the best car insurance payment frequency option for you and start saving money on your car insurance payments today.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Sep 15, 2020

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Here's what you need to know...

  • Car insurance must be paid up-to-date to remain valid
  • Exact car insurance payment dates depend on your insurance company and car insurance policy
  • Possible payment plans include monthly, every 6 months, and entire annual premium paid in full
  • Paying a year in advance could save you $100 a year on your car insurance costs


Driving legally means that you must find and purchase an auto insurance policy and keep that policy up-to-date by paying your car insurance premium on time.

Insurance companies typically offer monthly car insurance payment plans and paying your entire policy up front. If your payment plan or insurance policy is too expensive for your current budget, you can use a comparison tool to find a policy that you can afford.

Start comparing car insurance rates now by using our FREE tool above.

Table of Contents

Is it better to pay car insurance in full or monthly?

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The two most common ways of paying for car insurance are monthly and entire premium up front. Is it better to pay car insurance monthly or every 6 months? Or, is it better to pay car insurance annually? Read on to learn all about the various car insurance payment options?

Monthly payments plans, like the ones described by the Consumer Affairs and Business Regulation in Massachusetts, are most affordable for drivers because their total premium is divided by the total months in the policy.

For example, if your total policy cost for six months is $500, $500 would be divided by your insurance company, and you would be charged $83.33 per month, assuming the insurance company didn’t assess fees for the monthly payment plan.

If you choose to pay your entire premium up front, you would be charged a single payment at the beginning of your policy. In the above example, it would mean paying the full $500. If you are wondering, why can’t I pay my car insurance monthly, then you may have a company that requires car insurance payments in full up front!

Though, some insurance companies offer discounts for drivers that pay their entire premiums in a single payment.

If neither payment option works for your family budget, you can use a comparison tool to quickly review multiple insurance policies to find one that offers better coverage at a lower rate.

  • Insurance can typically be paid upfront or monthly
  • Discounts like the pay in advance car insurance discount may be offered for policy holders that pay their entire premium up front
  • A comparison tool can help you find more affordable car insurance with better coverage

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Keeping Your Car Insurance Up-To-Date

No matter how often you choose to pay your car insurance, you must keep it up-to-date. Not paying your premium on time can lead to car insurance lapses. Car insurance lapses can result in penalties and fines.

In Georgia, the Department of Revenue can suspend the registration and license plates of uninsured vehicles. The Georgia Department of Revenue is regularly updated when a car insurance policy begins and when a policy ends.

When a vehicle in Georgia is deemed to be uninsured, the owner of that car is given 30 days to find a new insurance policy and charged an insurance lapse fee.

In other states, like North Carolina, the DMV is notified of the lapse in insurance coverage. This can result in the suspension of the car’s registration and license plate and a fee.

In NC, the fee increases, depending on the number of times the vehicle’s insurance has lapsed.

To avoid fines, fees and difficulty obtaining an insurance policy, it is important to never let your policy lapse.

If your insurance policy is no longer affordable for you, a comparison tool can help you find a more affordable policy.

  • A lapse in insurance due to nonpayment can result in the suspension of your car’s registration
  • A certain amount of time is given for the car owner to re-establish insurance
  • A comparison tool can be used to find a new insurance policy if yours has lapsed.

Payment Options for Car Insurance

Most car insurance companies offer a variety of ways to pay, including in-person, over the phone and online. You can also set up automatic payments with your bank account.

Depending on the state where you reside, your insurance company may charge you a down payment on your insurance premium. In Massachusetts, the amount can be as much as 30 percent of your premium.

All states require drivers to carry a certain amount of auto insurance in order to drive legally. How you pay your insurance premiums is between you and your insurance company. In general, most insurance companies accept monthly payments or the entire premium up front.

If you fail to pay your payment on time, your insurance company could cancel your policy, resulting in a lapse of insurance coverage. If you cannot afford your insurance policy or need a better policy, a comparison tool can help you quickly view multiple auto insurance policies.

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How often do you pay car insurance premiums?

Most car insurance companies offer payment plan options to decide how often you have to pay your car insurance rates. When checking to see how often you pay your car insurance premiums you can always check your policy. You can pay a small amount each month, but you’ll save money by paying in full.

  • There are several payment plan options you can choose from for car insurance
  • The most important thing is that you do not let your coverage lapse
  • You’ll save the most money by choosing to pay annually, but it can be difficult to be disciplined enough to have that money ready when it’s due

Owning a vehicle comes with a huge set of responsibilities. Not only do you have to pay your car payment and title fees, you also have to worry about regular car ownership expenses for maintenance and insurance coverage.

When you put off maintaining your vehicle, there is a strong chance that the vehicle will suffer a premature breakdown, but when you fail to maintain your insurance coverage, you could face serious civil and criminal penalties in court.

The only way to maintain continuous car insurance coverage and avoid these stiff penalties is to pay your premiums regularly.

How often you are required to pay for your insurance depends entirely upon the pay schedule that you choose and the type of policy that you carry.

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Policy Terms: 6-month terms vs. 12-month terms

Insurance companies will sell one of two types of standard car insurance policies: 6-month terms and annual terms.

When you are shopping for coverage and would like to know how often payments will be due, you must differentiate the two policies first.

In the insurance industry, the policy term is the period of time that the policy remains in effect and the coverage remains valid. The term will have a start date and an end date.

The span of time between the two will either be 6 months or 12 months. Once the term is up, the policy will be up for renewal.

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Why do most insurers offer 6-month car insurance policy terms?

While the length of the policy term will vary from company to company, a vast majority of the larger insurers in the marketplace will only offer 6-month policies.

The primary reason for this is because 6-month terms are beneficial to the carrier.

When the carrier underwrites a policy twice per year, they are able to raise premiums for infractions and at-fault accidents sooner than they would if it were an annual policy.

In the eyes of the insurer, the more opportunities to raise premiums the better. With this being said, there are still a select few companies that will continue to offer their policyholders the option to buy a 12-month term.

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What are the benefits of 12-month car insurance policy terms?

One of the biggest advantages of buying 12-month car insurance is that your rates will be locked in for an entire year.

As long as you do not make any changes to your vehicles, drivers, usage or coverage options, the policy premiums will remain the same until your term comes up for renewal.

Having locked in rates for 12 months is advantageous because there is a delay in when your policy will be underwritten for renewal. Instead of getting put under the magnifying glass twice each year, you will only be assessed once.

If you have a moving violation just a month into your term, the insurer will not see this or charge for it for 11 months. This is also true when you have an at-fault accident that is considered to be chargeable.

If you pay your premiums in full and you tend to be the forgetful type, you will only need to remember one date with an annual policy.

While insurers do send renewal notices at least 30 to 45 days before a renewal is processed, it is common for policyholders to overlook due dates. This can lead to a missed payment and then a lapse in coverage.

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Payment Options: Choosing a Car Insurance Payment Schedule

Now that you have brushed up on car insurance policy terms, the next step is choosing your own customized car insurance payment schedule. The options also vary from company to company and can depend upon the length of term that you carry.

Here are some of the most common payment options that you have:

Paid in Full Car Insurance

For those who can afford to pay for premiums upfront, choosing a paid in full payment schedule is best. In doing this, you will receive an invoice only once per term.

You do not have to worry about installment payments or automatic drafts because the bill will be paid off. You also do not have to worry about lapses during the term or the assessment of senseless policy fees.

Many insurers will offer their customers discounts for paying in full for 6 months or 12 months at a time.

You should ask your agent how much the discount is to determine if it is worth skipping the installment option to pay all at once.

Quarterly Car Insurance Payments

Consumers who cannot afford to pay in full but who prefer not to pay monthly can select a quarterly installment. In doing this, you will pay your premiums every 3 months.

You will still avoid some of the service fees that the insurer charges to clients with monthly schedules, but you do not have to shovel out a small fortune all at once.

Monthly Car Insurance Payments with Automatic Draft

If paying monthly is best for your budget, you can select an automatic payment option to reduce the likelihood of missing a car insurance payment.

You will still have a payment due on the same date each month, but you have peace of mind in knowing that the payment will come out of your account without you taking action.

What is great about this option is that you can get a discount just for having payments setup for electronic transfer.

Some insurers will even let you select the best date for the draft, which offers you greater flexibility.

Skip a Month Car Insurance Payment Plans

Not all companies offer a skip a month plan, but there are some carriers that do. Instead of dividing payments into equal payments for the term, the company will charge the customer for just 5 out of the 6 months.

The payment may be higher throughout the term, but you will go without a payment for the last month before your renewal. Consumers who need to pay monthly but who prefer to skip a month in payments should consider these plans.

As you can see, there are several different payment options and schedules you can choose from. It is important to choose an insurer that offers a plan that works for you.

If you are shopping for coverage, start by using our FREE rate comparison tool by entering your zip code below!

Can I pay car insurance monthly?

Most companies let you pay monthly for car insurance, but you may be charged extra fees which will cost you more in the long run than paying the rates upfront.

  • Insurance providers do everything in their power to make insurance accessible to whoever needs it, which includes offering affordable payment plans.
  • Some insurance providers charge considerably more for the service of monthly payments.
  • There are advantages and disadvantages to both monthly payments as well as annual plans.

If your financial position is preventing you from paying your car insurance premiums in full and up-front, you might be wondering if you can pay monthly for car insurance instead.

The good news is that you can. The bad news is that it takes a bit more work to find a favorable policy under such circumstances, and you will pay a little more for the convenience of making monthly payments.

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What are the options for paying for car insurance rates?

It used to be that there was only one option for paying for your insurance premiums. You had to pay them on an annual basis.

Fortunately, most insurance companies have come to the realization that people need and want flexibility when it comes to paying for their insurance.

Paying your car insurance premium once a year is still an option. Insurance companies also offer a bi-annual option so that you can pay your premium twice a year or once every six months.

If you would like to pay more frequently, several companies offer quarterly option so that you pay every three months. Most car insurance companies now also offer the option to pay your premium monthly.

What are the advantages and disadvantages to paying your car insurance monthly?

One of the advantages of paying your car insurance on a monthly basis is that you can divide up your premium into 12 smaller increments, which makes it easier to budget your money.

When you pay by the month, you can easily and conveniently set up an automatic payment through your bank account or your credit card, so you don’t even have to worry about remembering to pay it on time.

For many people, the monthly payment option is ideal because they often don’t have the large amount of money required when the annual payment is due.

A disadvantage of paying your car insurance premium on a monthly basis is that, in the end, it costs you more than if you paid on an annual basis. The insurance company will often charge you more in administrative fees when you decide to pay more frequently.

Another disadvantage of paying monthly is that you have to remember to pay your bill on time every month. If you have a busy life, paying the bill may get away from you. If you pay it late, you probably will incur late fees which add up in the end.

What are the advantages and disadvantages to paying your car insurance once a year?

If you choose to pay your car insurance premium on an annual basis, one of the advantages is that you will be saving money. Most insurance companies will give you a discount for paying the premium in one lump sum. Depending on the company, this discount may be anywhere from 5 percent to 20 percent off your total premium.

Another advantage is once you pay your premium, you don’t have to worry about paying it for another 12 months, so it is one less bill you have to worry about each month.

A significant disadvantage for a lot of people in regards to paying car insurance on an annual basis is that they need to come up with a large sum of money at one time. For some people, this amount of money is not an issue, but for those who live paycheck to paycheck, this lump sum is difficult.

If possible, you should try to estimate your payment ahead of time and ensure you have the money in the bank to cover it.

Another disadvantage to paying on an annual basis is that if you choose to switch to a different insurance company during that year, it can be a pain. Although insurance companies will usually refund your money, it can take them a month or two to get the check to you, which may affect you financially.

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Why don’t all companies charge the same for monthly car insurance payments?

Insurance companies are not compelled by law to provide a specific monthly payment plan at a specific cost. Therefore, they take some things into consideration when they decide to offer monthly payment plans.

First, statistics prove that those with lower credit ratings tend to have more accidents or violations on their driving records. It’s assumed that those who need monthly payment options will be on the lower end of the economic scale and therefore, a higher risk to the insurance company.

Likewise, those who pay their premiums in full and upfront are deemed to be higher on the economic scale and get the best rates.

Second, when the car insurance company accepts monthly payments, it has less money to invest as a means of protection against a possible car insurance claim by the driver. This higher risk of financial loss is passed along to the consumer in higher monthly payments.

Finally, administering monthly payments requires a larger account receivable staff and more collection services. All of these things add up to increased costs that are passed on to you.

Are there car insurance companies who specialize in monthly payment plans?

In most major cities there are car insurance companies who specialize in monthly payment plans. Generally, these insurance companies are simply agencies rather than underwriters, making their money by selling insurance policies for larger providers.

These companies tend to specialize in high-risk drivers as well, which makes monthly payment plans almost a necessity. Unfortunately, their rates can be significantly higher.

On the positive side such insurance companies often don’t require a substantial down payment except in extraordinary circumstances. If you can manage $100 or so a month, you should be able to put your car on the road.

Are there any car insurance companies whose monthly payment plans are better than others?

Like any product or service we buy, there will always be some companies we think are better than others. It’s up to the individual consumer to know what he’s looking for and what he would consider a good payment plan.

But as a general rule, just remember not to focus completely on the monthly premium.

First, you want to make sure you find a policy that provides you with the appropriate type and amount of coverage. What good will it do you to find the cheapest monthly payment option if the policy doesn’t pay the full value of your vehicle in case it’s totaled?

By the same token, perhaps your bank or other financial institution requires a certain level of coverage not provide by the cheapest plan.

Second, you’ll also need to consider customer service and support. Some insurance companies that offer to let you pay monthly for car insurance are also notorious for poor customer service.

In some cases, although not always, these companies know they have high-risk drivers with few choices, so they don’t go the extra mile to make sure they have five-star service. An internet search for customer reviews is usually a big help here.

Finally, think of car insurance with monthly payments as a temporary thing. The sooner you can solve whatever financial issues have put you in this position to begin with, the sooner you can get lower monthly premiums and preferential treatment.

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Cheap Monthly Car Insurance Payments Online

To find cheap monthly car insurance payments online, shop around for rates and take advantage of discounts. Cheap monthly auto insurance rates differ drastically between companies and among drivers.

  • There are several discounts you may qualify for that will lower your monthly insurance premium
  • If your credit score is low, you can expect to pay more for your car insurance coverage
  • High-risk drivers are also charged more for coverage as they pose a risk to the insurance agency

We are all currently looking for ways to cut back, cut down, and save money. One way a lot of Americans are hoping to save is by finding cheap monthly car insurance.

There are many ways to find lower auto insurance rates and discounts once you know how the insurance game works. Take a look at the facts below to make shopping for car insurance easier.

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Statistics and Premiums

There are several ways you can save money on your car insurance. The following will give you some ideas on how to do so.

  • Check your credit score – Try to find ways to raise your credit score, such as paying your bills on time, making extra payments per month, and keeping balances low.
  • Slow down when you’re on the road – Speeding tickets, minor accidents and driving errors are costing you not only in tickets but also in your car insurance premiums. High-risk drivers are charged more money in monthly car insurance rates.
  • Insure multiple drivers within the household – Insuring more drivers and more cars means more business for the insurance companies, so they are more likely to cut you a deal.

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Finding Cheap Monthly Car Insurance

Average monthly car insurance rates differ drastically between companies and among drivers.

You can save by buying new polices from the same company that is handling your current policy. You can often get home insurance, health insurance, life insurance and sometimes even pet insurance all from one place.

When this happens, you can benefit from a serious discount on your premium.

Discounts are extremely important, and most drivers should be able to take advantage of one or two.

Taking a defensive driving course may also help you get cheaper monthly rates. Many companies are now giving a discount to those who complete a defensive driving or safety driving course.

Always check with your agent or company to find out what discounts they offer for defensive driving courses.

Other discounts to inquire about include:

If you are insuring a young driver, you should ask your insurance company if they offer a good student discount as well.

Other insurance agencies will give you a discount if you install anti-theft devices on your vehicle. Ask your agent what devices can lower your monthly premiums before investing in a particular item.

The type of car you drive and the age of the car will obviously factor into what you are paying. The next time you are shopping for a new car, you may want to give your insurance agent a call and find out which makes and models will really save you money in premiums.

The Importance of Shopping Around

One of the best ways to lower your monthly premium is by shopping around at other insurance companies.

You can reduce your rates by also making sure that you are not over-insured in any areas.

Do be careful not to reduce your coverage down to the bare minimum if you don’t have to. Those amounts are normally not enough to protect you if you are in a serious accident.

There are a number of things you can do to get cheaper monthly car insurance. Asking about discounts, improving your credit score and shopping around are just the beginning.

You can get started by entering your zip code below and comparing car insurance quotes from multiple companies now!

Is Pay By The Month Car Insurance Right for You?

Paying your car insurance monthly makes sense if you can’t pay the rates for six or 12 months at once. You may be charged extra fees, though. Read on to decide if month-by-month car insurance is right for you.

  • Month-by-month car insurance is a good option for customers on a tight budget
  • You will still need to buy third-party liability coverage (and PIP if you live in a no-fault state)
  • You may face additional fees for having a pay-per-month car insurance policy

Pay by the month car insurance is one option for getting the coverage you need. It makes sense when a policyholder has difficulty coming up with premiums for six or 12 months at once. Be sure to ask your insurer whether it charges extra fees in this instance, though.

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The concept of pay as you go car insurance is fairly new and not yet widely offered. Find out how it works and if it’s right for you.

Can you get pay-as-you-go car insurance?

In most parts of the United States, drivers are required to have car insurance coverage in place in order to drive legally. The minimum level of liability insurance required is set by state law.

A car insurance buyer must have at least this amount of protection in place, but he or she can always choose to buy a policy with a higher limit if desired.

You will need to buy third-party liability coverage to pay for the cost of medical bills and other expenses incurred by the occupants of the other vehicle if you are involved in an at-fault accident.

Even if you live in a no-fault state for car insurance purposes, you will need to have some liability coverage in place to pay for damages you cause in an accident that is over the state threshold for paying out no-fault benefits. Other insurance types include:

  • Personal Injury Protection (PIP) – no-fault car insurance states also require that drivers buy coverage to pay for the medical bills incurred by themselves and the occupants of their vehicle if an accident occurs.
  • Collision coverage – with liability coverage, you can buy insurance to protect your own vehicle. Collision coverage pays for the cost of repairs to your car after an accident. If your car is totaled in an accident, the policy pays out based on your vehicle’s cash value.
  • Comprehensive coverage – protects you for losses other than those caused by a collision. This is the part of the policy that covers you for damage caused by flooding, wind, hail, fire, and vandalism. It also pays out if your car is stolen.
  • Uninsured motorist coverage – pays out when the at-fault driver in an accident does not have insurance. The other driver’s coverage pays out first (up to its policy limit) and then your underinsured protection would be used toward the amount that is still owed.

Is pay-as-you-go car insurance cheaper?

Many car insurance companies offer multiple payment options to their customers. Paying on a monthly basis is convenient and is the one most likely to fit in with a customer’s budget.

If you decide to pay for your coverage in this way, you may be charged additional fees for the convenience of doing so.

When a car insurance company has to process multiple payments, it incurs higher administrative costs, and these expenses are passed on to the policyholder in higher prices.

If you are able to pay for your coverage on a six or 12-month basis, ask the insurance company for a discount based on the fact that it is saving on the administrative costs associated with your policy.

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Pay By the Month Car Insurance: Compare Rates to Get the Best Pricing

If you want to get the best possible pricing on your car insurance coverage, be prepared to shop around for coverage.

Can you pay car insurance payments with cash? Typically, no. You will need to pay car insurance payments with check, automatic bank draft, or even credit card payment. Most car insurance companies do not accept cash payments for car insurance premiums (or at least discourage cash car insurance payments, by offering discounts for online car insurance payments or discounts for paying your car insurance policy in full).

Each company licensed to sell insurance in your state sets its own prices for coverage, even for the same type and level of protection.

By taking the time to get quotes from several companies and comparing them, you can save a significant amount on the cost of your coverage.

To find pricing information from a number of companies, check out free quotes available online.

In many cases, all you need to do to find out how much you will pay is to fill out an online form with some basic information about yourself, your vehicle, and your driving record.

Do you want the convenience of pay as you go car insurance coverage or would you like to get more savings by paying for a longer period at once?

No matter which option you choose, the important thing is that you get a good level of coverage for the money you are spending on premiums.

You can get many free car insurance quotes now by entering your ZIP code.

References:

  1. https://www.investopedia.com/articles/pf/06/carinsurance.asp
  2. https://www.mass.gov/ocabr/insurance/vehicle/auto-insurance/mv-insurance-payment-plans/
  3. https://www.edmunds.com/car-reviews/top-10/top-10-ways-to-lower-your-car-insurance-bill.html
  4. https://dor.georgia.gov/penalties-and-fines-lapse-insurance-coverage
  5. https://www.ncdot.gov/dmv/help/insurance/
  6. https://www.mass.gov/ocabr/insurance/vehicle/auto-insurance/faq.html#q11

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