With finances pinching tighter seemingly every day, we have to look to creative ways to save money, both today and in the future. From finding the best rates for loans and savings accounts to choosing less expensive alternatives at the grocery store, every little bit of savings can add up. When closely researched, some great savings opportunities exist in home and car insurance costs. One way you can save significant money is by paying your car insurance in full. While this is a much larger up front cost, it can add up to hundreds of dollars in savings over a policy period.
Spending Now Vs. Keeping Money in Savings
While the argument can be made that keeping the money you would spend on a full payment gives you access to that money and generates interest, the reality is, you will spend so much more in installment charges, that it will not be even marginally profitable. With savings accounts averaging about one percent in interest, the average 2010 car insurance policy of $1,566 for twelve months would generate less than $16 in the bank. When you compare car insurance costs on a paid-in-full policy versus one paid by installments, you see that you could save between $156-$313 at most insurance companies. The math is pretty clear on this issue, but is there more to consider?
Having Your Cash Available Now
With the days of free-flowing credit apparently over, cash savings are increasingly important. The money you have in savings may be all that protects you from the disaster of an unexpected expense such as car breakdown or job layoff. Sometimes interest rates are not the only thing to consider, and you’ll need to choose the best option based on your personal financial situation. You may want to make installments if paying your car insurance in full will wipe out your savings. If, however, you have an established emergency fund, saving a couple hundred dollars per year is a strong incentive to pay the full premium at once.
Striking a Compromise
Paying your car insurance does not always have to be an all or nothing situation. Many insurance carriers will offer other payment discounts, such as a discount for electronic funds transfer (EFT). EFT plans allow the carrier to automatically withdraw the agreed upon amount every month from your bank account. To reward giving them this guarantee of payment, insurance companies offer discounts, such as Progressive that offers a discount for EFT of about 10 percent.
You can also place a down payment on your premium, reducing the monthly payments and often the installment fees as well. This is a good option if you have some cash but not enough to cover the entire premium. Also, policy lengths may be different among carriers. In addition to the one-year term, you may be able to opt for a term of six months. This makes paying your premium in full much more attainable.
While paying car insurance in full will not work for everyone, it is one of multiple options that allow you to save money on your insurance premiums without sacrificing coverage. Make a point of talking to your insurance carrier before your next renewal to go over payment options and ways to save money on your premium.