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: Aug 11, 2021

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Key takeaways...

  • Car insurance is always paid in advance, not in arrears
  • Many policies charge by the month, but others charge by the quarter, by the six-month term, or by the year
  • You can choose between several car insurance payment options
  • If you cancel your policy before your term is over, the company owes you a refund
  • You can get the best deal on car insurance by comparison shopping and performing regular policy reviews

When you sign up for an auto insurance policy, your monthly payments start immediately. Depending on the company and insured, they may ask for a small deposit with your monthly payments. Of course, this is moot if you decide to pay your insurance premium all at once.

You pay your car insurance in advance, not in arrears. Your insurance company provides coverage upon collecting your premium. This prevents long-term collection efforts if you fail to pay. They’re required to send notices. Then they simply cancel your auto policy based on non payment of your annual premium.

The premium you pay is for a defined period of coverage. Depending on your policy, this period could be:

  • a month
  • three months
  • six months
  • a year

Once your payment term comes to an end, you must make another payment to keep your coverage active. If you’re on a monthly plan and using auto pay, it will generally keep billing on the same schedule.

Auto insurance premiums stand in contrast to other bills, such as your cable or cell phone bill, which you often pay in arrears. The reason you pay car insurance in advance is that your insurance company takes on greater risk than your cable or cell phone company.

Let’s pretend you have an accident and file a claim three months into your policy, but you haven’t paid a dime to the insurance company because your bill comes at the end of your six-month term.

Depending on your coverage limits, the insurance company might have to shell out thousands of dollars for a customer who hasn’t paid them anything. Unfortunately, that same insured may not want to pay them.

To avoid this risk, the insurance company bills you up front.

But don’t fret; you have options. Enter your zip code above to compare car insurance quotes and find the best rate for the coverage you desire.

Most insurance companies give you several choices of how to pay your bill. The following sections outline these different billing methods.

How Can You Pay Your Bill for Cheap Car Insurance?

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Most insurance companies give you several choices of how to pay your bill. The same options don’t make sense for every insured. The following sections outline these different billing methods.

The four main auto insurance billing options are full pay, quarterly pay, monthly pay, and auto pay. Many insurance companies give you discounts for choosing a certain billing method.

Full Pay

Full pay is where you pay for the entire term of your auto insurance policy up front. Most car insurance terms are for six months, though some last a full year.

Full pay requires the biggest cash outlay of any payment method but it also usually results in the biggest discount from your insurance company. The insurance company loves to get all its money up front.

They’re willing to accept less money in exchange for zero risk that you’ll stop paying before your policy term ends.

Quarterly Pay

Quarterly pay is a compromise between full pay and paying every month. You pay up front for three months at a time. It’s still a lower risk to the insurance company than a month-to-month schedule.

They might give you a discount for paying quarterly. It can also be a good option if you don’t want a huge cash outlay but also don’t want the hassle of remembering to pay your bill every month.

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Monthly Pay

This is the standard payment option where you pay your bill in advance every month. It’s also the riskiest to the insurance company, as the company only gets one month at a time. Some companies require a credit card or bank account information for auto pay. This also takes the burden of remembering off you as an insured ensuring continuous coverage.

You’ll pay the most per month using this method since no discounts will apply. But if you’re cash-strapped or prefer not to pay all at once, then a monthly pay schedule might make the most sense.

Autopay

Autopay is like monthly pay, except that you allow the insurance company to deduct the money directly from your bank account each month. Some companies offer discounts for autopay.

If you want to save money but still only pay one month at a time, this method is one to consider.

Deposits and Down Payments

If you’re a first-time car insurance company or your credit is iffy, you might not be able to avoid making a big one-time payment up front.

Even if you choose the monthly option or auto pay, the insurance company may require a deposit. A down payment provides the insurance company with another layer of protection.

The company wants this protection with first-time buyers because such customers are usually new drivers. So the company has no way to measure the risk they present. Consequently, they take a worst-case-scenario approach and assume the customer is high-risk.

The deposit helps mitigate this risk.

If the issue is your credit, you might be asked to pay a deposit for the same reason utility and cable companies ask for one. The company wants to get several months of payments up front in case you stop paying your bill. Of course, as you build a payment history with a cheap car insurance company, they may stop requiring this extra step. This is especially true if you improve your credit score (which could also improve your insurance rates on comprehensive coverage).

Auto insurance deposits usually range from 25 to 50 percent of the total policy cost. For a six-month policy that costs $100 per month, you may be asked to put down $150 to $300 when you buy the policy. The lower your rates, the lower any deposit or rates will be with an auto insurance company. So look at things like your driving record to see where you can improve without cutting coverage.

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What if you cancel your policy mid-term?

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Perhaps the biggest reservation many car insurance customers have about paying up front is what happens to their money if they cancel.

Full-pay customers have the most to lose here. For instance, what if you pay for a year up front but after three months move to a new city where you don’t need a car, such as San Francisco? Do you lose your money for the remaining nine months?

The answer is no. If you pay for a policy up front and then cancel before the policy term ends, the insurance company has to refund the unused part.

The only caveat is they can charge a cancellation fee but this fee is usually small. Still, if you think you might have to cancel at some point, be sure to review your policy to see what cancellation fee, if any, applies.

Comparison Shopping and Performing Policy Reviews

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Whether you pay monthly, quarterly, or yearly, you always want to make sure you’re getting the best deal on car insurance.

So many options exist that it can be overwhelming. Every company claims to have the best deal. So how can you know you’re getting the best coverage for your needs at the lowest price? By comparison shopping and performing regular policy reviews.

Comparison Shopping

The best way to determine if a car insurance quote is a good deal is to compare it to other quotes. Ideally, you want to look at three to four options before making a decision. These options give you enough data to know with confidence that the policy you choose is the best one.

Insurance agents often use high-pressure sales tactics to get you to go with their policy without shopping around first. Even if they make the deal sound unbeatable, don’t give in. The deal may indeed be fantastic but that doesn’t mean an even better deal isn’t out there.

Always shop and compare when buying car insurance.

Performing Policy Reviews

Most auto insurance policies come up for renewal every six months. It can be tempting to let your existing policy renew without further research. It’s the path of least resistance and least effort, and you’re undoubtedly a busy person with many responsibilities.

But failing to review your auto insurance coverage every six months can result in paying more than you should. Your policy renewal is a great time to shop around again and see if a better deal has come along in the last six months.

It’s also a good time to reassess your coverage types and levels; maybe your needs have changed.

You have several methods and schedules to choose from when paying your car insurance bill. One thing you don’t have a choice about is paying in advance rather than in arrears. Car insurance companies want their money up front.

Fortunately, by shopping around and doing your research, you can get a great deal, regardless of how you pay for it. Use our free rate comparison tool below to shop today.