Do you pay car insurance a month in advance?

When you buy a car insurance policy, you pay your bill in advance. Pay a year in advance and save $50 to $100 a year.

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Reviewed byJoel Ohman
Founder, CFP®

UPDATED: May 20, 2020

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Here's what you need to know...

  • You have to pay car insurance upfront (or pre-billed)
  • There are many payments options for insurance policies
  • An extra deposit may be required to start your policy
  • If you pay a year in advance, you may save $50 to $100 a year
  • In the event of a policy cancellation, you will receive a refund

When you purchase an auto insurance policy, you pay your bill in advance. In order to bind (or start) an insurance policy, an insurance company must collect a premium. This is to ensure that your policy is up to date.

It is also so that in the event of a claim, the insurance company has some reserve from your payments to help with sharing the cost of the claim.

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Is it better to pay insurance in full or monthly?

There are many payment options for paying your insurance bill:

  • Full pay – You pay your policy in full for six months (or a year if the option is available). This form of payment usually gives you a large discount because the insurance company is guaranteed to get your payment
  • EFT (electronic funds transfer) – which is also known as automatic withdrawal. This is when the insurance company takes your payment out of your checking, debit or credit card every month on the same day
  • Quarterly payments – This is a great option for those who do not like the hassle of paying every month but also do not have the funds to pay in full. There is usually little to no discount for this kind of payment plan
  • Monthly billing – This is a good option if you want to pay monthly but do not want an insurance company pulling from your account every month. There is no discount for this payment option because the insurance company cannot be certain you will pay your bill

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Will I have to make a down payment for car insurance?

In some cases, a deposit or down payment may be required to start a car insurance policy. Depending on the insurance company, your first payment could be between 25 and 50 percent down.

The most common case for a large down payment is for first-time car insurance holders.

The good news is that after your first six months, you won’t need to pay another deposit as long as you pay your bill every month on time.

Another case where a large down payment might be required is if you have had a lapse in your insurance.

Depending on the length of the lapse, you are once again considered to be a first-time policyholder.

Credit is also a factor in whether or not you have to pay a deposit upfront.

Insurance companies use an insurance score to determine their rates and sometimes bad credit can have a negative impact on your insurance premium.

Do I get my money back if I cancel?

Even though your insurance is paid in advance, you are owed a refund in the event of a cancellation.

The refund is prorated and the amount you receive back is dependent on what day you cancel your policy.

Some companies have a cancellation fee so it is best to contact your company if ever you are thinking about canceling to find out if they assess a fee!

Compare Companies and Their Payment Options

It is important to compare different companies when choosing an auto insurance provider.

Since you are giving the company your money in advance, you want to be sure you are making the right decision.

Many companies have many different options for payment and payment discounts.

Choosing the right company for you will make the difference in the amount you pay upfront so remember to choose wisely!

Taking your time and compare at least three different companies before making a final decision for your car insurance needs.

Compare companies side-by-side to see how much you could save on car insurance.

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