The Perks of Paying Annually for Your Auto Insurance Policy

If you drive, you must carry auto insurance in Ontario. The reason that auto insurance has evolved and become mandatory was to ensure that everyone had access to a minimum level of financial restitution in the event of an injury, death, or if there was property damage. As such, many of us will find ourselves in circumstances where we are needing to shop around for auto insurance (or, we enlist a broker to do the comparison shopping on our behalf!) If this is you, you’re probably doing a bit of research, trying to find the best way to get the most savings. There are a lot of tips and tricks out there.

Here’s one you may not have heard of: paying for your entire policy term upfront. Managing your auto insurance policy and making payments on time is standard for most people, but it can be a bit of a hassle. Now, what if we said we could remove that hassle by only needing to pay one time for your policy – per year?

Here’s the deal with paying annually for your auto insurance policy versus monthly.

What kinds of payment options are there?

Yes, there are actually four types of payments that most auto insurance companies will offer. Keep in mind that not every company offers different means of payment, and some drivers (depending on their risk profile) may not be eligible for each means of payment.

Here are the 4 types:

Full Pay

This is when you pay the total amount of your premium in one upfront payment. This may be for a 12-month or 6-month period and will generally come with an added discount for paying in one go. Full pay is often preferred by insurance carriers and may be the only method of payment for certain drivers.

Monthly Billing

It’s sort of a societal standard, having to pay bills monthly. For many, it can be more convenient just to pay monthly for their insurance, as they probably have a few other bills that they can lump together and pay all in the same day. Monthly payments need to be paid by a specific due date.

Quarterly Payments

For some people who don’t have the necessary budget to pay each month, they instead pay every three months. This can be more convenient for people who may not get paid as regularly as others, and it’s just more convenient.

EFT or Electronic Funds Transfer

This method of payment, known as electronic funds transfer, is an authorized, automatic payment that comes directly off your debit card or out of your checking account each month, semi-annually, or annually. Always make sure you have enough funds in your account before the withdrawal date to avoid entering overdraft or having the payment bounce.

Did you know? Monthly vs annual payments

It used to be that policyholders were required to pay their entire policy premium for the year upfront. But, as you might imagine, for people on a tight budget, this isn’t always possible. If you’re a young driver under the age of 25 who has only just started driving, your insurance premium could range between $2,000-$3,000/year – and paying that amount upfront isn’t feasible for everyone. (Although, to note, not everyone has a 12-month policy period. Some people’s policy terms only last 6 months, but even half that is still quite a bit of money!) To afford insurance, it meant policyholders had to preplan and carefully budget to ensure that they were able to make payments on time.

This was, however, before auto insurance was a requirement throughout Canada. In order to make insurance more accessible to the general public, Canadian insurance companies were forced to switch from the upfront payment option to offering monthly payments. This would mean that more people could afford to purchase insurance and that it was, overall, just more convenient.

Now, it’s become standard to pay for auto insurance month-by-month. But why is this more expensive than paying annually? Isn’t it the same amount? Well, no. We’ll explain why.

Each payment is subject to administrative fees

Every time you pay your premium each month, that payment is subject to a small charge – an administrative fee, if you will. This fee may only be a small percentage of that total payment, but multiply that fee by twelve, and it seriously adds up. As you can imagine, insurance companies would prefer that you pay your bill in full so that they can ensure there’s no risk of non-payment. As such, the administrative fees for those payments would only apply one-time in the case of an annual or one-time payment (for 6-month term policies) and policyholders who choose this method would be rewarded with cheaper rates.

What are the perks of paying semi-annually or annually?

Paying annually/semi-annually isn’t always better, depending on your situation. But there are some perks. If you have the financial resources to do so, paying annually can offer the following benefits:

• You can save money by not having to pay the administrative fee each month.
• You won’t have to worry about paying your premium each month – just once or twice a year.
• You will have guaranteed coverage for a year once you pay the full premium. You won’t have the risk of your insurance premium cancelling you because of a non-payment.

For many, it’s just easier to make one payment every 6-12 months, rather than keeping track of monthly payments. If you have the financial resources to do so, and your insurance company offers this option, it’s highly recommended you do this.

What are the perks of paying monthly?

This article isn’t to suggest that paying annually is the only way to go. For some people, monthly payments are the best option. Not all insurance companies permit monthly payments, depending on your circumstances, but if they do, you may reap the following benefits of monthly payments:

• The due date for monthly payments is always the same each month, so you don’t need to wait on anyone to know when to make a payment.
• The bill is generally smaller and more manageable than upfront payments.
• You can set up automatic payments, which reduces your risk of non-payment.
• There’s less financial stress for having to save up for upfront annual or semi-annual payments.
• If you need to switch providers mid-term, there’s less stress about doing so.
• Purchasing a new vehicle mid-term means the additional cost of insurance is spread over a few months, rather than having to pay all the additional premiums upfront.

If you’re unsure of which payment option you’d prefer, consult with an Excalibur Defender. We’d be happy to give our advice based on your current insurer, your personal circumstances, and your needs. Give us a call today.