With finances pinching tighter seemingly every day, we have to look to creative ways to save money, both today and in the future. From finding the best rates for loans and savings accounts to choosing less expensive alternatives at the grocery store, every little bit of savings can add up. When closely researched, some great savings opportunities exist in home and car insurance costs. One way you can save significant money is by paying your car insurance in full. While this is a much larger upfront cost, it can add up to hundreds of dollars in savings over a policy period.
Spending Now Vs. Keeping Money in Savings
While the argument can be made that keeping the money you would spend on a full payment gives you access to that money and generates interest, the reality is, you will spend so much more in installment charges, that it will not be even marginally profitable. With savings accounts averaging about one percent in interest, the average 2010 car insurance policy of $1,566 for twelve months would generate less than $16 in the bank. When you compare car insurance costs on a paid-in-full policy versus one paid by installments, you see that you could save between $156-$313 at most insurance companies. The math is pretty clear on this issue, but is there more to consider?
Having Your Cash Available Now
With the days of free-flowing credit apparently over, cash savings are increasingly important. The money you have in savings may be all that protects you from the disaster of an unexpected expense such as a car breakdown or job layoff. Sometimes interest rates are not the only thing to consider, and you’ll need to choose the best option based on your personal financial situation. You may want to make installments if paying your car insurance in full will wipe out your savings. If, however, you have an established emergency fund, saving a couple of hundred dollars per year is a strong incentive to pay the full premium at once.
Striking a Compromise
Paying your car insurance does not always have to be an all-or-nothing situation. Many insurance carriers will offer other payment discounts, such as a discount for electronic funds transfer (EFT). EFT plans allow the carrier to automatically withdraw the agreed-upon amount every month from your bank account. To reward giving them this guarantee of payment, insurance companies offer discounts, such as Progressive that offers a discount for EFT of about 10 percent.
You can also place a down payment on your premium, reducing the monthly payments and often the installment fees as well. This is a good option if you have some cash but not enough to cover the entire premium. Also, policy lengths may be different among carriers. In addition to the one-year term, you may be able to opt for a term of six months. This makes paying your premium in full much more attainable.
While paying car insurance in full will not work for everyone, it is one of the multiple options that allow you to save money on your insurance premiums without sacrificing coverage. Make a point of talking to your insurance carrier before your next renewal to go over payment options and ways to save money on your premium.
Post by Jessica
I will pay my homeowners insurance on an annual basis (1 payment). I usually pay my auto insurance in 6 payments over the year. Covering 2 cars makes it a bitmuch to pay all at once.
Great argument. Definitely worthy of consideration. I pay monthly, but it’s worth looking into.
I have always paid home insurance annually and auto insurance every 6 months. I just hate to lose money by paying in installment. Like you said in your post it not smart way handling your precious money. Be the ultimate smart consumer when it comes to money.
Unfortunately my insurance carrier only offers a discount for annual payments. I pay annual but I also budget for the annual expense so even if there was not discount for annual payments I would probably pay it that way anyway. Mainly, because I won’t have to worry about it.
I wish I had this option for my renter’s insurance since I no longer have a car to worry about!
We pay an annual payment for both home and car insurance – We got a better discount doing it this way.
Where we live there is only one place to get car insurance. It is a government monopoly. When I was younger and had a less steady income I used to pay monthly but now I pay yearly. The yearly rate is cheaper so if I can keep doing it this way I will. I make an effort to save for this bill ahead of time so it doesn’t have too much effect on the budget.
I pay monthly, but I think they only charge around $1 for process fee. I don’t think there are any discount if I pay yearly, but I will check.
I always pay our car insurance in full. I set up automatic transfers to ING every workday and the money is ready to send in every 6 months. I love it.
I’ve always paid both homeowner’s and auto insurance in full. The savings isn’t huge, but it’s better than a hit in the head. And because I self-escrow the amount on a monthly basis, the money is sitting there when the bills show up.
Ditto the property tax, Medicare Part D, and Medigap. If you’re putting the money aside in a savings instrument over the course of a year, you’re generating some (tho’ not much) interest.
To my mind, the savings in hassle is worth what little one might lose in the minimal interest a safe financial instrument pays. The fewer the monthly bills to have to diddle with, the better!
Does paying your auto insurance in cash save u money?
Not cash, but in full yes since most companies have a “service” charge when they split the payments up.