Jessica Sautter is a Content Writer for CarInsuranceCompanies.com with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Sep 27, 2020

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Key takeaways...

  • When you buy insurance, you’ll have to pay the entire policy premium throughout the term that you choose
  • The term is the policy period where your coverage is bound and your insurer can’t change your policy class
  • You don’t have to pay the entire premium up front
  • If you have a six-month auto insurance policy, you can pay quarterly to pay half of your premium
  • If you have a 12-month auto insurance policy, you’ll select a semi-annual payment option to pay half of your policy

Paying your car insurance bills on time is a must. When your insurer bills you, you have to pay that invoice by the due date on the bill or you’re at risk of losing your coverage. Just one day of driving uninsured could change your financial future for years.

This is why all insurance consumers need to budget all of their recurring expenses before they choose an installment option.

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Every insurance company is different. There are carriers with extremely flexible payment options and others that only offer the traditional option to pay in full. If you’d like to pay a large portion of your premium but you can’t pay it all at once, here’s what you need to know:

Do you pay your premiums up front or after you get the coverage?

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Insurance is a financial contract. It’s something you sign up for before you need the protection. While you are buying protection while you’re driving on the road, you’re only paying for a service until you actually need to file a claim.

If you didn’t get billed before the insurer started to cover you, you could cancel your coverage and choose not to pay.

Most service contracts are billed after the service is rendered simply because the carrier doesn’t know how much to charge you until the billing period is over. This isn’t how your auto insurance works.

When you’re paying for the service afforded by your personal car insurer, your premiums will be paid upfront.

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How are your premiums split up?

The only way that your insurer is able to charge you upfront for the premiums you’re using during your term is for the company to calculate a total premium. When you first apply for coverage, you get a quote that estimates your premium.

Then, after you apply, you’ll get new paperwork showing your final policy rate.

The final policy rate after the policy is issued is what’s used to split up your insurance payments. You can either pay the final rate in full or the carrier will divide that figure by the total number of days the coverage is afforded.

If you buy a six-month policy, the carrier will divide the premium by 182 days. If you buy a 12-month policy, the total premium will be divided by 365 days.

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Selecting the Right Installment Plan

Now that you know how premiums are broken up to bill you in advance, the next step is to select an installment plan. There are several different payment plans that you can choose that are dictated by the term you’re carrying.

Here are some of the payment plans that you’ll be able to choose from when you’re buying insurance:

  • Monthly installments
  • Monthly EFT payments drafted from your account each month
  • Five-pay plan where you skip a month at the end of your six-month term
  • Quarterly installments billed once every three months
  • Semi-annual installments billed once every six months
  • Annual premiums billed in full upfront

Which installment do you choose to pay half?

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You can choose from one of to installment options when you want to pay the total premium in half. You need to look at your quote or your policy declarations page first to see what term you’re carrying. You will either have a standard six-month term or a 12-month term.

If you’re carrying an annual term, you’ll ask your agent to set up a semi-annual installment plan. When you do this, you’ll pay the first six months first and then you’ll be billed the next installment six months from the effective date.

Your installments will consist of a daily charge for 182 days.

If you’re carrying a six-month term, you’ll ask your agent to set up a quarterly installment plan. This means you’ll pay once every three months. The first payment is due at the effect date and then the next payment will be due three months later.

Your payments will be for the premium charge for 91 days of coverage.

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What is the benefit of paying for half of your premiums?

Paying for half of your premiums can reduce how much you pay for billing fees. You’ll only pay one fee instead of a fee every month. You can also reduce the likelihood of missing a payment, which would lead to a lapse of coverage and penalties.

Make sure you always check what the installment options are when you’re buying coverage.

If you are shopping for coverage, start to get insurance quotes now. Use our online quoting tool to get multiple quotes instead of calling agents directly.

This will help you get instant quotes in a minimal amount of time.

References:

  1. http://www.insurance.ca.gov/01-consumers/105-type/9-compare-prem/
  2. http://www.helpinsure.com/auto/autoglossary.html
  3. http://insurance.mo.gov/consumers/auto/autobuy/tips.php
  4. http://www.dfs.ny.gov/consumer/faqs/faqs_auto.htm
  5. https://www.thebalance.com/best-ways-to-make-your-car-insurance-payment-527399
  6. http://www.myjourneytomillions.com/articles/paying-car-insurance-full-really-worth-savings/
  7. http://www.consumer-action.org/index.php/alerts/articles/insurance_premium_installment_fees