Usually, you have a choice to make monthly or annual premium payments when you buy an insurance policy. There are pros and cons of both, so you need to weigh those to make the right decision about your premium payments and finances.
Benefits of Paying Annual Premiums
Making payments annually means you have to pay a huge sum nearly at the beginning of each year. This way, you will not have any monthly bills to pay, and you can save money during the year. Furthermore, the insurance companies offer discounts for the drivers who pay their insurance premium annually.
It is also helpful in maintaining your credit scores due to no chances of missing or skipping your premium payments. In fact, after setting up an auto-draft, there are chances that you missed or made double premium payments. Thus, if you have annual premium payments, the chances of dropping from insurance policy become zero as you haven’t missed any monthly payments.
Paying annually is beneficial for drivers who can afford to pay such a large amount out of their pocket in one go and don’t want to withdraw from their account every month.
Drawbacks of Paying Annual Premiums
Even though annual payments can save some extra cash, this payment method isn’t for everyone. If you are paying annually and don’t set aside a specific amount each month, it might come as a blow to renew your policy.
When you make monthly payments, you become accustomed to the regular expense. You manage your expenses and budget accordingly. But when paying the annual premium, you might forget about the premium and become vulnerable to intervals in coverage.
If you choose annual premium payments, you might not have the flexibility of budget like monthly premiums. If you have another emergency at the time of annual premium payment, you can find yourself in a financial crisis.
Benefits of Paying Monthly Premiums
Monthly premium payments require you to pay bills on time for each month, but making payments on time has other benefits. First, you can track the changes occurring in your premiums when you make monthly payments. If you chose annual payments, you wouldn’t know about the changes occurring in the premium rates, and if the prices rise, then a lump sum for annual payments might surprise you.
Keeping track of premium rates monthly allows you to shop and compare premium rates with other insurance companies offering the same policy if you are not happy with your premium rates. Furthermore, insurance agents are busy at the beginning of the year, but you can make them fix your problems at any time of the year when they are less busy.
Drawbacks of Paying Monthly Premiums
Usually, an insurance agency offers discounts to drivers who make annual premium payments, which saves them almost 10-15% of the total amount compared to monthly premium payments. Also, if you decide to pay a car insurance premium monthly, you might not have peace of mind since you have to make sure all your payments are on time. And if any monthly premium is missed, it might cancel your insurance policy.
In the end, you decide whether to choose monthly or annual premium payments. Both have their benefits and drawbacks. Although monthly premium payment is what most people choose, paying annual premium payments is still a reasonable choice for few.
But before you choose any policy, make sure to discuss it with your financial advisor and insurance agent. Remember to consider your budget before choosing any payment method; this is not to affect your lifestyle or accidentally miss any payments and risk your policy being cancelled.