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 of offering flexible payment plans that make it easier for policyholders to budget while still allowing for some convenience.
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 quarterly 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. Two terms you’ll hear on a regular basis are ‘policy term’ and ‘payment plan’. While they sound similar, they’re actually 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. During the term, your policy premium won’t change as long as you don’t make changes to your drivers, vehicles, coverage options or other rating factors. The insurer is obligated to provide you with coverage all throughout your term if you fulfill your duties as a policyholder and make your payments on-time.
- 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 setup a payment plan or installment plan with the insurer by selecting an option that’s offered.
Not all carriers offer the same payment plan options, but most providers are more flexible than ever so that they compete in a very competitive marketplace. If you select a monthly payment plan, your policy period will still last for the entire 6 or 12-month term.
What are the most common 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 you’re 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 offer 12-month terms offer 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.
- 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.
- Quarterly: Paying a quarterly car insurance installment 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 3 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 payment every month or you’ll skip a month at the end of your term. Policies where you skip a payment, are called 5 pay plans because you only pay 5 times for 6 months of coverage.
What are the advantages of paying quarterly?
Paying quarterly makes a lot of sense when you can’t afford to pay in full but when you don’t want to commit to remembering payments every month. One of the biggest advantages of paying quarterly is that it keeps premium payments manageable but you don’t have to remember to make a payment every month.
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 really regulated, they can add up quickly. When you only pay 4 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 biggest disadvantages of paying 4 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 so that they don’t have to pay administrative fees to collect money throughout the term. 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.
Insurance is something you must have when you own a car. 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. 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. Enter your zip code in our FREE tool below to start comparing car insurance rates now!