Most car insurance companies give you the option of paying your car insurance premiums in installments or as a lump sum. The installments can be monthly, quarterly or bi-annually. Here are some reasons you should think twice about going the installment route:
You Forgo the Discount
Most auto insurance companies will give you a discount if you pay your premiums in a lump sum. When you make a lump sum payment, say for a year, you are guaranteeing the insurance company for the entire year. You will not get the discount if you opt for monthly payments because there is a risk you may not pay all your premiums within the year.
You May More Processing Fees
Many auto insurance companies charge processing fees every time they receive your premium payments. The fee may be minimal, but even minimal fees quickly add up to considerable amounts if they are paid twelve times in a year. You only pay the processing fee once when you pay your premiums at once.
You May Incur Late Fees
The risk of defaulting on at least one out of twelve monthly payments is higher than the risk of defaulting on one yearly payment. Insurance companies, just like other businesses, don't like late payments, which is why they charge late payment fees for defaulters.
It Is Inconvenient
Some people find it difficult to settle bills on a regular basis without fail. This is not a huge problem if you only handle the bills every once in a while. However, it may be a huge problem if you have to do it every month.
Increased Risk of Account Overdraw
Many people who opt for monthly payments set up automatic draws on their accounts or other forms of automatic payments. This is a good way of minimizing the risk of default and avoiding late payment fees. However, it also comes with a risk – the risk of overdrawing your account if the due date arrives with less money in your account; this may also attract its own fees.
Short Grace Period
In most cases, your car insurance policy will not elapse on your exact due date; insurance agents typically give their customers a short grace period. Unfortunately, the grace periods attached to monthly payments are way shorter (a few days) than those associated with lump sum payments. This means you risk having your policy elapse is higher if you are paying your premiums on a monthly basis.