An insurance policy has a set price that can be paid in full or divided into installments. When presented with the option of paying a lump sum or smaller payments over the course of time, many people choose the installment option.
First, it is important to clear up common misconceptions about insurance that is paid in installments. Typically, insurance companies offer policies based on this feature. They set a price assuming the average person will pay in installments. The policy features everything included in other policies, but instead of paying all at once, the driver has the option of paying one-third or one-sixth or one-twelfth of the policy at a time. This is a great option for someone on a budget who does not have the option of paying several hundred or thousand dollars in one lump sum.
The confusion arises when drivers see the policy paid in full is a lower amount than the total of the installment payments. They assume the paid in full policy is cheaper than the installment policy. This is only partially true. You will likely pay less for the paid in full policy, but that is because most insurance companies offer a discount when you pay up front. You are getting the exact same policy and it is cheaper, but it is so because of a discount, not because the policy price is actually less.
Choosing the Best Policy for You
So is it better to pay insurance monthly or in full? It depends. It is impossible to give an across the board answer because what is better depends on your personal situation. Obviously, you want to pay as little for something as possible. Even if you are comfortable enough to make a lump sum payment, you should save money whenever possible.
Unfortunately, this savings is not an option for everyone. If you are unable to afford a large lump sum payment, your only choice is to pay in installments. Stretching your payments out over time saves money monthly, even if you lose out on the discount.
The best way to deal with this is to try to make up the difference with other discounts. Insurance companies are willing to offer discounts for a variety of things. For instance, if you have a flawless driving record and there are other drivers on your policy, you are likely eligible for two discounts. It might be possible to accumulate even greater savings than you would if you paid your policy in full.
A final word of advice: Make sure you ask for all available discounts. Insurance companies might not offer the discounts for which you are eligible unless you press a little. Do not be afraid to call the company and ask for discounts, and if necessary, threaten to take your business elsewhere if you are told no discounts are available.
If you are looking for the best insurance rates, use our search tool to help you find them. Our website offers a variety of information about insurance and the most convenient method for finding a policy that is right for you.