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 19, 2020

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Key takeaways...

  • The average down payment is hard to define, as each insurance company has its own policies concerning payments
  • Because auto insurance is a contract, you must pay for services before they are rendered
  • Most states have laws that require car insurance providers to offer installment plans for paying your car insurance premium
  • The first factor that will affect your first payment is how much your coverage is going to cost
  • Shop around for quotes from different providers to see if you can find a lower premium for the same or more insurance coverage

Many wonder about the down payment on their insurance policy, which is the first payment that is needed to get your coverage started. The average down payment is hard to define, as each insurance company has its own policies concerning payments.

Get set to make your first down payment when you find affordable car insurance by inserting your ZIP code into the FREE quote tool above!

Furthermore, state laws also govern the down payments that providers can and cannot charge you.

Your own coverage and personal information have a lot to do with your costs as well. There are a few rules of thumb when it comes to an average initial payment, so read on!

Table of Contents

Insurance Is a Contract

A payment is generally needed to get your car insurance coverage started. Because auto insurance is a contract, you must pay for services before they are rendered.

You promise to pay your premium or a portion of your premium to start, and the insurance company will provide you coverage for those items named in your policy.

Your policy cannot start until you have made some sort of payment.

In order for your insurance contract to be valid, you need an initial payment of your premium.

That is why contends the National Association of Insurance Commissioners, you don’t get your policy until you make a payment.

For instance, if your first payment falls through, then your coverage will not be in force. If you get into an accident, you will likely not have any coverage.

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State Laws

Most states have laws that require car insurance providers to offer installment plans for paying your car insurance premium. Such laws are part of a state’s efforts to protect consumers and help to make insurance as affordable as possible.

Many people would be unable to pay their annual or even bi-annual car insurance costs in one lump sum payment.

If that was the only payment option, far more individuals would be without car insurance coverage.

For example, the regulators at the Texas Department of Insurance guarantee Texas drivers the right to pay their policy in installments.

In the Lone Star State, a down payment cannot be more than the cost of two months worth of coverage, which helps to keep the start-up costs of car insurance manageable. In addition, an insurance company cannot require the entire premium upfront in Texas.

Factors that Affect a Down Payment

The first factor that will affect your first payment is how much your coverage is going to cost. Obviously, more expensive coverage will include a higher initial payment. Car insurance rates vary widely, so initial payments will too.

Next, your state laws will impact your first payment, such as if you were in Texas you would not have to pay more than your first two months worth of coverage.

Some states mandate a percentage cut-off; for example, requiring insurers to charge no more than 30 percent of the premium. Other states divide it into payment amounts like Texas, and other states name a dollar amount.

Not all states have such laws to protect consumers, and then the insurance companies can require whatever they want.

Then, they might base the down payment amount on your credit. This allows those with the best credit to have the lowest initial payment, while those with poor credit have a much higher down payment.

Each provider offers its own length of coverage, which will also affect the amount of your initial payment.

Some companies have six-month policies, while others have year-long policies. They may require fewer payments, such as four months of payments for a six-month policy or breaking a premium into two payments.

Another factor that will affect your first payment deposit is if you are a new or returning customer. In general, the down payment is more for new customers than it is for renewal customers.

Additionally, if you have had a lapse in coverage or returned payments, an insurer will likely want you to pay a bigger deposit to start your policy. In some states, a special circumstance such as a lapse of coverage allows insurers to demand higher initial payments.

Similarly, if you are in a high-risk driver category, the insurer may also be able to require you to pay a higher down payment than drivers of average risk.

High-risk drivers include those with multiple accidents and tickets, those convicted of hit-and-run or DUI, and drivers who have been caught driving without insurance coverage.

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Typical Down Payments

Your actual payments will vary depending upon the cost of your coverage, the company with which you are insured, and the state in which you live.

For an example, Allstate offers a ten-month installment plan for a 12-month policy. The down payment is 15 percent for new customers and 10 percent for renewal customers.

Another example is Geico. They have payment schedules that can break a payment into anywhere from two to six payments, and they also offer nine-month payments or month-to-month payments.

Two-payment policies require a 50 percent down payment, three-payment policies need a 40 percent deposit, and four-payment policies require a 25 percent initial payment.

State Farm allows for six-month policies to be broken into three payments, and the first payment must be 30 percent of the premium.

Other companies require a 20 percent down payment, a payment that equals 30 days of the premium, or 11 percent of the premium if the payments are broken into ten payments.

As you can see, each insurance provider has its own way of determining the amount of the necessary down payment.

To roughly estimate your deposit payment costs, divide your premium by six for bi-annual policies or 12 for year-long policies. That gives you the monthly cost of your coverage.

If you can split your payment into monthly payments, then your first payment will likely be two months worth of coverage or 30 percent; though that is just an estimate. The fewer payments you have, the higher your initial payment will be.

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Benefits and Drawbacks

There are many benefits to using an installment payment system to pay your car insurance premium. Obviously, it makes it much easier to pay your premium in small amounts, rather than in one big lump sum that could be in the thousands of dollars.

However, remember that you might not always be able to pick the installment schedule that is right for you.

Many insurers also require that you sign up for Electronic Funds Transfers (EFT) if you want to utilize a payment plan.

An EFT gives the insurance company authorization to take the payment out of your bank account at the same time every month. This helps to keep you from forgetting to pay your monthly payment.

Additionally, there are also drawbacks to installment plans that include initial payments.

The biggest drawback is that many insurance providers charge you a convenience fee every month to use an installment payment plan.

Similarly, other providers offer a paid-in-full discount that you aren’t eligible for if you make monthly payments. It actually costs more, in the long run, to break your premium into payments.

Furthermore, not everyone likes Electronic Fund Transfers. Many see it as an invasion of their privacy, or a chance for the insurance company to mess up their bank account when they accidentally withdraw incorrect amounts.

This does occur infrequently, and it can take some days to put it back to the way it was.

Additionally, you have to ensure that there are funds in your bank account. If you don’t have enough money in your account, then your insurer might treat it as if you wrote a bad check.

They will charge you a return check fee, a late payment fee, and any other fees they can think of. You will also likely have overdraft charges from your bank.

Ways to Lower Your Down Payment

There are a lot of options for lowering your down payment. For one, you can increase your number of payments. Another option is to lower the overall cost of your insurance premium.

However, you should realize that your premium will have to be paid sooner or later.

Putting off a larger initial payment just delays your payments until a later date.

If you are having trouble paying your deposit payment, then you will probably need to make some changes.

Unless you have had a recent financial emergency that has depleted your cash on hand, your down payment is something you should be able to handle. If you can’t pay it, then maybe you need to reassess your vehicle and budget.

One option is for you to find coverage that costs less, which will lower your initial payment. This does not mean less coverage. Shop around for quotes from different providers to see if you can find a lower premium for the same or more insurance coverage.

Comparing quotes is one of the best ways to save on coverage, and most experts recommend it.

For instance, the Insurance Information Institute names shopping around and comparing coverage as the best ways to lower the costs of insurance.

Start comparing car insurance rates by placing your ZIP code in the FREE quote tool below!