Laura Berry is a former State Farm insurance producer and insurance expert.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 14, 2021

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Here's what you need to know...

  • When buying auto insurance, your policy will last for a specified term
  • The term is how long coverage is afforded and how long your rates are guaranteed with the carrier after issuance
  • When you’re selecting a plan, you should consider the installment options that are available through the carrier
  • Most carriers that offer both six and 12-month terms offer their policyholders the option to pay monthly, quarterly, semi-annually, or annually
  • Paying quarterly is a good option when you can’t afford to pay in full, but you want to avoid the processing fees that come with monthly payment plans
  • When paying quarterly, it’s essential that you note your policy due dates to avoid a lapse for non-payment

Not everyone can afford to pay their auto insurance in full each time a policy term starts. While the pay-in-full option doesn’t always make sense for the average consumer, not everyone wants to commit to paying a monthly bill either. This is the exact reason why more and more auto insurance carriers offer flexible payment plans that make it easier for policyholders to budget while still allowing for some convenience.

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As you sift through all of the payment plan options, paying quarterly might make the most sense. You can pay for more than a month at a time but aren’t committed to paying for 6 or 12 months worth of premiums all at once. If you’re trying to decide upon the best installment for you, consider the advantages and disadvantages of different payments so that you can set up the best plan.

What’s the difference between a policy term and a payment plan?

It’s easy to confuse all of the auto insurance terms you’re presented with when you’re buying coverage as a first-time vehicle owner. For example, two terms you’ll hear regularly are ‘policy term’ and ‘payment plan.’ While they sound similar, they’re used in very different ways.

  • Auto Policy Term: A policy term is how long your policy will be in force once it starts, as long as you make your payments and don’t allow your coverage to lapse. Your policy premium won’t change during the term as long as you don’t make changes to your drivers, vehicles, coverage options, or other rating factors. Your insurance policy rates may change (higher or lower) after this set period. The insurer is obligated to provide you with coverage throughout your term if you fulfill your duties as a policyholder and make your payments on time. Of course, if you have a claim or ticket during this time, your auto insurance companies could raise your rate significantly at the next renewal.
  • Auto Policy Payment Plan: A payment plan is how often you’ll pay premiums towards the total policy premium charged throughout the term. If you don’t pay the policy premium in full at the beginning of the term, you’ll need to set up a payment plan or installment plan with the insurer by selecting an option that’s offered. You should always choose your premium based on what you can pay your provider in your budget. If you can afford a one-time larger charge, it can save you money. If you need to break it into smaller monthly payments, you save money by avoiding interest charges on credit cards and other payment methods.

Not all carriers offer the same payment plan options, but most providers are more flexible than ever to compete in a very competitive marketplace. As a result, choosing the right term and payment options is just as important as choosing the right types of insurance.

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What are the most common insurance payment options?

The payment options you can choose from will depend upon the carrier you’re doing business with. This is why you should ask your agent what your payment options are while comparing insurers and the products that the companies offer. Some of the payment plan options you’ll be able to ask about include:

  • Annual (pay-in-full): Only companies that provide 12-month terms provide an annual payment option. When you pay your premiums up for a year when you’re purchasing your policy, or it’s renewing, your policy will be paid in full. If you intend to pay with a credit card, be sure that the interest rate you’re paying isn’t more than the processing fee you’d pay to choose a different payment option. Even a tiny interest rate could cancel out some discounts for full payment.
  • Semi-annually: A semi-annual payment option could either be a pay-in-full option or an installment option depending on the term you carry. If you’re carrying a 6-month term, paying semi-annually is essentially paying in full. If, however, you’re carrying a 12-month policy, paying semi-annually means you’re splitting your premiums in half. You might still save money on auto insurance policies by getting rid of higher administrative fees.
  • Quarterly: Paying car insurance installments quarterly is becoming a much more popular option for policyholders with both 6-month and 12-month terms. If you pay quarterly, you’ll make a payment once every three months. This means you’ll pay twice under a 6-month policy or four times under a 12-month policy.
  • Monthly or 5-month Pay: Paying monthly is still a popular option for customers who prefer regular payments and want to keep those payments as low as possible. When you pay monthly, you’ll either pay the same amount every month, or you’ll skip a month at the end of your term. Policies where you miss a payment, are called five pay plans because you only pay five times for six months of coverage. Generally, when you first sign up, you’d pay your insurance provider a higher amount the first month.

What are the advantages of paying quarterly?

Paying quarterly makes a lot of sense when you can’t afford to pay in full but don’t want to commit to remembering payments every month. One of the most significant advantages of paying quarterly is that it keeps premium payments manageable. You don’t have to remember to make a payment every month. Depending on the company, you can still set up auto-pay with your card company. This way, you barely have to think about paying for your insurance products at all.

Since missing just one payment can lead to a lapse, you’re less likely to be exposed to risk with a quarterly payment plan.

It’s also nice to avoid the hefty processing fees you’re charged to make installment payments. Since fractional premium charges for making monthly payments aren’t regulated, they can add up quickly. On the other hand, when you only play four times each year, you’re cutting out 8 of those charges that could have driven your insurance expenses up substantially.

What are the disadvantages of paying quarterly?

Paying quarterly isn’t all good. One of the most significant disadvantages of paying four times per year is that you won’t get the paid-in-full discount. Many providers offer this discount to encourage their clients to pay all at once not to have to pay administrative fees to collect money throughout the term. However, in addition to missing out on the discount, you’ll also be charged a fee for each payment the company collects.

The next disadvantage has to do with consistency. When you pay monthly, you know your payment is coming up. When you skip months, however, it’s easier to forget to make your payment. This could result in a lapse and some hefty penalties if you’re not good at remembering the payment cycle. In addition, if you don’t plan your payments, you could still run into extra fees with your bank if you don’t have enough in the bank when your payment processes.

Insurance is something you must have when you own a car. However, just because you’re required to carry insurance doesn’t mean you’re obligated to buy coverage through a company that doesn’t offer convenient payment plans.

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Should you use quarterly payments for your auto insurance products?

If you would like to switch to a quarterly option, start by pricing the rates through several carriers. Once you use an online rate tool to get instant quotes, choose a company with installment options that make sense for you and apply.

You can apply this to your payment options as well. Your driving habits, credit score, and other factors will determine your auto insurance rates. Online services and payment plans can get you discounts. The right payment method can also help you plan your monthly budget and enjoy other benefits like AAA membership for roadside service. Enter your zip code in our FREE tool below to start comparing car insurance rates now!