Due to the convenience with monthly payments, most insurance companies provide the option of either monthly payments or yearly payments for customers to choose from. However, is a monthly payment truly the best option?
While it may seem apparently so, you will need to carefully consider the pros and cons of monthly payments. The decision will assuredly depend on your financial management and is pretty much the primary factor however there are other aspects to consider such as your future investments as well as a peace of mind knowing that your insurance has been paid for.
We will now help you decide whether a monthly or annual payment is the ideal option. We will walk through numerous advantages of annual as well as monthly payments along with their disadvantages of course.
Advantage: Easier to manage financially
While most people don’t consider their budget which will eventually leave them in debt every month, the people who do calculate their budget usually do it on a monthly basis. Thus, with such an arrangement, accounting for a monthly insurance payment as part of the monthly budget can be easier to manage. In comparison, having to pay for a whole year at a time may upset an individual’s finances.
Accounting for your monthly insurance payment as part of your expenditure will help you budget accordingly for the rest of your recurring payments as well as disposable income without running short.
Disadvantage: More of a hassle
While this point may prove to be contradictory to the aforementioned advantage, paying monthly is only easier to manage financially, apart from the fact that finances would now be taken care of more easily, the whole process of having to make a monthly payment can be quite the hassle. Making a monthly payment would mean that you will have to be remember to write up a check or make a bank deposit every month.
Of course, there is the option of making automatic payments to counter this disadvantage. To arrange this, you will have to speak to your insurance company. The payment will be debited from your account every month at a specific date. This feature would solve the hassle of having to remember and make payments monthly.
Advantage: Provides a backup reserve of funds
The need for money is unpredictable. You may find yourself in need of money at the times you least expect it. Making a monthly payment would mean that you don’t have to pay a large chunk of money at once. Thus, the balance funds can be saved and if required used in an emergency. Alternatively, you may use these funds to invest in something rather than make an annual payment and have the money sitting with your insurance company.
Making a payment monthly would usually result in a small fee charged for processing. You may not factor in this cost as the fees is relatively low however if you calculate the cost over a period of a year, it does add up. Of course, relatively it may still seem like a small amount but if you happen to be having a few financial constraints, this cost can be rather expensive. This advantage will depend on the individual. For some, this extra fees may seem a little much while others may consider this a worthwhile investment for the added convenience and ease of management monthly payments provide.
Paying monthly allows you to have a more temporary relationship with your insurance company. of course, if you are happy with your insurance provider, this may not seem advantageous however most individuals find themselves with an insurance provider with poor service which would be discovered when a claim is made or due to some other circumstances. In this case, if you paid for the year, you will either have to stick to your existing insurance provider until the end of the year or lose a considerable sum of money. With monthly payments, this problem is eliminated.
Another reason why you might want to keep switching auto insurance providers is due to the dynamic market. With the tough competition comes better plans and better value thus you can switch plans whenever a better offer is available and always have the best service for your insurance.
Some insurance companies do provide a refund if you pay for the year but cancel your service before the end of the year however the process can be tedious and will take quite a bit of time which can be rather inconvenient. If this money is the only money available for your new insurance plan, you will have to wait until you receive the funds which can take a considerable amount of time.
What’s better, monthly or annually?
As you can see, the decision will typically depend on the individual and the situation faced by the person. while monthly insurance may seem like a better option, you need to consider the aforementioned cons discussed such as the fees and the hassle. If you are stuck in a dilemma, you might as well opt for a monthly payment as it is apparently the better option.