For many of us, the cost of insurance can seem daunting, particularly if you have multiple policies. Paying for policies such as house, contents and car insurance requires a degree of budgeting. Most insurers allow you to pay in one of two ways: in one lump sum to get coverage for the year, or in 11 or 12 monthly installments. Some consumers choose to pay monthly as it is the only way they can afford the premiums, and some prefer to pay up front as it is cheaper. Here are the positives and negatives to both options.
Spread the Cost
The biggest advantage of paying your insurance in monthly installments is that you spread the cost. This could be especially useful if you are, for example, a young driver paying hefty premiums. Monthly payments can be much more manageable, allowing you to budget month to month, but they do work out to be more expensive. This is because you are essentially taking out a loan with the insurance company and have to pay interest on the amount borrowed.
Also consider your financial stability. If paying for insurance upfront will eat up all your savings and put strain on other areas of your budget, it would be wise to consider monthly repayments. This allows a little cushion should you need the funds in the next 12 months.
Improve your peace of mind
For many, the decision between monthly and annual repayments comes down to affordability. If you cannot comfortably afford to pay upfront without it affecting your finances, paying monthly will give you greater peace of mind knowing that you can manage your finances realistically. Entering into a monthly repayment plan will also improve your credit score – provided you stick to the repayment plan. (But remember, you could damage your credit score if you miss payments, and you might not be able to get insurance if you have a very low credit score.)