Most insurance companies give you the option of paying for the entire policy annually or spreading out the payments over each month. For some, being able to pay in monthly installments for the year is the perfect option. For others, if they have the cash up front, they are happy to pay their premiums annually in exchange for about 7-10% in discounts.
This begs the question: which option is better? As with so many other finance-related matters, it depends on your personal situation.
The vast majority of Canadians pay their premiums monthly. This is partly because not everyone can absorb a hefty one-time payment that rolls what would otherwise be 12 payments into a single bill. This is especially true if you were to pay both auto and home insurance up front. That would be a pretty big hit to your bank account.
There is also the convenience factor of automating your monthly payments, and working it into your budget. It’s systematic and easy to keep track of. You know the amount it will be each month and you know when it’s going out. The setup is regimented and easy, and you never have to worry about a huge sum disappearing from your bank account each year.
On the other hand, paying annual can be a good option if you have the funds to weather the large one-time fees. Even if you don’t have a massive bank account, getting the payment out of the way can alleviate some stress. You won’t have to worry about keeping enough in your account to make sure your premiums are taken care of.
But the real benefit to paying annually is that your insurance provider may give you a discount. Many providers do this because it eliminates the possibility that you’ll cancel partway through the policy and not pay the full amount.
The discount is usually somewhere in the neighbourhood of 7-10%. So if your policy $1,500, you could either pay $125 each month, or pay a one-time fee of about $1,380 (that’s with an 8% discount).
Paying annually can help you save in the long run, but it’s not the best option for everyone. If you don’t have the saving built up to withstand a large withdrawal, then going with monthly payments will be more convenient. If you do have the resources, then paying annually can net you some nice savings each year.