Is There a Discount If I Pay My Auto Insurance Early in Full?
Last Updated on October 27, 2020
If you have some extra cash on hand, you may want to consider paying your auto insurance bill for the year in full. Many insurance companies offer a discount for people who pay their entire premium in full, called a lump sum discount. While this requires some extra cash on hand and some advance planning, it’s often worth the savings. Here’s what you need to know about lump-sum discounts.
How much do companies offer in lump sum discounts?
The amount of money you will save by paying in full is going to depend on how much your insurance costs to begin with. On average, you’ll probably save anywhere from 10 to 20 percent off what you would have paid monthly. For example, if you paid monthly premiums of $120, you would end up paying $1,440 over the course of the year. However, if you paid that same premium annually, it would likely be anywhere between $1296 to $1,152.
Why do insurance companies offer lump-sum discounts?
There are many reasons why insurance companies choose to offer lump-sum discounts to their customers. The first is because it ensures that they won’t have to worry about late payments from you for the entire year. The second is because monthly payments require monthly processing, which is more labor-intensive for the insurance company. Essentially, your insurance company is rewarding you for saving them time and stress.
Reasons to Pay Your Auto Insurance in Full
The discount you’ll get is the biggest reason to pay your car insurance in full. However, there are a few other ways you can benefit from making your payments annually. The first is that you won’t have to worry about monthly payments. You’ll have that bill out of the way for the entire year, so it can reduce financial stress. You also won’t run the risk of accidentally making a late payment or having your car insurance lapse.
When to Pay Your Auto Insurance in Full
There are some financial situations where you can easily pay your auto insurance ahead of time. The first is if you already have the money in savings and don’t need to hang onto it for anything else. This is the best option because you won’t have to disrupt your budget in order to make a large lump sum payment. If you are thinking about paying your insurance in full, you should start saving several months in advance. Take extra money from each paycheck and put it in a separate savings account where you won’t be tempted to touch it. This is a particularly good option if your income tends to fluctuate from month to month, which is common among freelancers, entrepreneurs, and artists. You can put the money away when you have it, and you won’t have to worry about making payments on a monthly basis.
Another reason to pay your auto insurance in full is if you get a large tax return or an inheritance. Putting that money towards your auto insurance will save you some money and stress in the long run. You also won’t have to worry about saving in advance for your lump sum payment.
When Not To Pay Your Auto Insurance in Full
There are some situations when you shouldn’t pay your auto insurance in full. If you would have to use a credit card or loan to make the payment, it’s better to just stick with a monthly premium instead. You’ll end up paying interest on that spending, so you won’t save as much as if you had paid in cash. You will also still have to worry about making monthly payments on the money you borrowed. There’s also a chance that you could negatively affect your credit score.
Another situation where you shouldn’t pay your auto insurance in full is if you would have to make major financial sacrifices in order to do so. You shouldn’t compromise your financial stability in order to make such a large payment, as it could end up backfiring later. It’s up to you to decide whether the spending tradeoffs are worth it or not. However, it’s typically not worth it to make a lump sum payment if it’s going to end up causing you extra stress later on. If you can’t make a lump sum payment, there are still other ways you can save money – talk to your insurance company to see if they offer other discounts.
If you’re doing well financially, it’s worth saving money to use for a lump sum payment on your auto insurance. You’ll save a significant amount in the long run, and you can put that money towards something important to you. You also won’t have to deal with the stress of monthly payments, and it will put you in good standing with your insurance company.