When signing up for auto insurance, you have the option of making a single annual payment instead of monthly payments. In some cases, this isn't a bad idea, but there are pros and cons to the annual payment plan. Neither option is best, but one might be better for you than the other, depending on your circumstances.
You may want to consider an annual payment plan if...
- You've just bought a new vehicle. When buying an older car, you don't know if it's even going to be running in six months. When you're not sure how many miles your car has left on it, it's easier paying month to month than it is asking for a refund once you've scrapped it.
- You have the money to pay up front. Different car insurance companies will offer different rates, but you're almost always going to save money paying annually instead of monthly.
- You hate paying bills. Besides saving money, it's just convenient to have those payments over and done with for a full year.
- Your income tends to fluctuate from month to month. If you work freelance, for instance, then you know there are good months and slow months. If you've just had a good month, getting the next year of payments out of the way means one less expense to worry about between paychecks.
Supposing that you do have the money on hand to get the payments out of the way, and your car is in fine working condition, it may still be preferable to go with a monthly plan. Whether because you're saving up for a new car or you want to keep your options open for shopping around with other insurers, a monthly plan is easier to cancel at any time.
Your insurance company prefers annual payments because it's cheaper for them to manage. They only have to process the payment once, rather than twelve times a year. That saves a lot of labor hours over time.
If you're happy with your current auto insurance provider, plan on driving this car for a year or longer or can afford to get your payments out of the way for the year, there really are no downsides. Just make sure that's what you want before you commit.