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How do you usually pay for your car insurance? A lot of people pay monthly, but is this the best option? Will you save money paying in full?
Most people opt to pay for their car insurance on a monthly basis. This helps with cash flow, and it tends to be the way that most insurance companies offer it.
I pay for mine annually. I’ll pay the whole fee in one go and then I’ll wait for the insurance quotes the next year. But is this a better way of paying for it? It depends on whether you want to pay less or whether you want the better cash flow option.
You’ll pay less if you pay for your car insurance in full
When the insurance companies separate the payments into monthly installments, there is a charge for that. After all, you’re sort of taking a loan out with the insurance company, saying that you’ll pay the monthly installments.
You could save as much as 7% by paying in full. This is going to depend on your insurance provider. It’s worth asking for a breakdown in the monthly fees so that you can see exactly how much you’ll save.
Monthly does work better for cash flow
Do you have the full amount just sitting around? Ontario car insurance is ridiculously high, even without any claims on it. Over the last few years with inflation, I’ve seen car insurance quotes rise from $1300 to $1700. And that’s with price comparison!
This can be a lot for people to pay out of pocket. Some people will choose to put it all on a credit card, and that leads to interest rate on their cards.
So, paying monthly could work out better. You can manage your cash flow better. You add the insurance costs into your monthly budget, so you know exactly how much money you have left to save.
Save up to pay for your car insurance in full
What if you could get the discount of paying in full without having to put it on a credit card? This is something that I aimed to do, so that I was able to pay for my car insurance in full. I saved up.
I worked out how much I would roughly need to save, putting the insurance costs at the top amount. Then I put that money into a savings account, and I used that to save in full. Now I just put away what the amount would be into the savings account each month so I’m ready for the annual payment.
It’s hard to figure this out all the time. However, if you have the money in the sinking funds, it can be worth putting it on the credit card and using the sinking funds. You can then replenish as you go. There is a risk of not quite having enough right away, but it’s less to pay off on the credit card than if you paid for the full amount with no savings.
Don’t use your emergency fund to do this, though. Your emergency fund is there if you end up with no income at all!
In the end, how you pay your insurance is going to depend on your cash situation. Don’t put it on a credit card and rack up the interest. Pay monthly if you need to. A lot of people do.
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Want to chat about the best ways to pay for your insurance? Want to get an insurance quote if you’re in Canada? Get in touch to find out how I can help.
