Car insurance premiums break the bank for some drivers, which is why they prefer to pay for their insurance by making a low down payment followed by monthly installments. They find it easier and more manageable to pay a smaller bill each month instead of a large bill once or twice a year when the policy renews. Because it’s against state law to drive without auto insurance (or any other type of financial responsibility), all drivers need to pay their premiums on time to avoid any late fees or terminations. Finding out how to make monthly payments and if they would be a better choice for the policyholder is important for every driver to do.

How It Works: Monthly payments made on an auto insurance premium are really no different than making a car payment each month. It is quite similar in that the policyholder receives a monthly bill reminding him or her of the policy’s total cost and how much is owed that month. The policyholder writes a check to the insurance provider in the amount due before the due date and mails it to the provider. There is also the option to pay through the insurer’s Website, if it is available. The payment usually posts within 1 to 3 days, depending on the company. This option may be more beneficial if the payment is due very soon and mailing it could bring on a late fee because it takes longer. However, most providers allow a grace period of a few days before they send out a late notice.

Making A Down Payment: The down payment of a monthly payment schedule is often worked into the billing plan. In looking at a premium bill, notice that either the payments are all equal to each other or the first one is substantially higher than the other expected payments. In the first case, the insurer has incorporated the down payment into the total cost and divided that final price (premium plus down payment plus fees) into equal installments to be paid over the course of the policy period. The second example is the insurer requiring a larger payment for the first bill with smaller subsequent payments. Here, the policyholder must pay the down payment, which is somewhere around 20% of the total premium cost, upfront.

Paying Monthly Fees: The one drawback to making monthly payments for coverage is the fees that are incorporated into the payments. These fees usually aren’t too much, ranging from a few dollars to around $10. However, when every month’s fee is added together, it makes the policyholder think about whether or not to continue with monthly payments or if it would be worth paying the premium in full and avoiding fees. If the monthly fee is $10 a month for a six month policy, that’s an extra $60 the policyholder has spent on their insurance coverage in fees. The $60 would be saved if the policyholder paid in one lump sum at the beginning of the policy period as there are no fees in this payment method.

Your Contract: Whether the policyholder is paying monthly or in one lump sum, the contract or policy period length remains the same. If the policy is for a six month period, then it will stay as a six month contract even if the policyholder is paying month to month. Insurance providers usually do not offer policies in a month to month contract or time period even if the policyholder is paying month to month.

Late Payments: The advantage of paying the entire premium at the beginning of the policy period is then there is no risk of making any late payments throughout the policy. When a person is required to make many payments throughout the term of the policy, there is a higher chance that person will forget at least one payment and make it late. Again, most insurers allow a grace period of a few days to receive the payment. If the money has not come in to the insurer by a certain date, the insurer will send a notice to the policyholder informing him or her of their missed payment. The notice will also inform him or her of the date in which the policy will be terminated if payment has not been made. The policy will be canceled and end on that date if in deed the payment is never made. Now the policyholder will need to contact the auto insurance company and reinstate their policy.

The only time this is not necessary is when the policyholder is switching companies. They are allowed to let the policy end, but it is more acceptable that the policyholder has their new insurance in place and already started before their old policy terminates. In many states, the insurance company is required to contact the state when a policyholder does not renew their policy. This is so the state can keep track of who has appropriate auto insurance and who does not. A policyholder may even be contacted by the state when their insurance is not renewed, with threats of fines until another policy begins.

Policyholders can avoid missed payments and unwanted terminations by signing up for automatic bill pay. This can possibly be done through the policyholder’s bank or through their coverage provider. In this, the policyholder sets up a certain date with the bank or insurer where the exact amount of the bill is withdrawn from the policyholder’s bank account and deposited directly into the company’s account. Once the permission has been given, this is done automatically on those dates until the policyholder stops it. With this choice, there is little chance of a payment ever being missed or late.

Paying month to month for auto insurance isn’t such a bad idea if it helps the policyholder’s budget work more in his or her favor. Although there are fees involved, most of them are small and worthwhile in comparison to paying the entire premium charge at once. If the monthly payment is still too much, opt to use the comparison tool found on our site to look for cheaper insurance. A lower premium gives way to a lower monthly insurance payment and possibly better coverage.