No matter where you are located in Canada, if you drive a car, you are required by law to have car insurance. If this is your first time shopping around, you may wonder what type of insurance payments are available and if you pay ahead for auto insurance. Also, which is better, paying monthly or annually?
In order to manage your auto insurance policy and ensure you don’t miss a payment, it is important to know the basics. Make sure you check your policy to confirm when your bill is due and keep track of when payments will be withdrawn, so you don’t risk missing a payment and having your policy canceled.
Do You Pay Ahead for Auto Insurance: Frequently Asked Questions
Why is car insurance paid monthly?
Years ago, insurance companies required policyholders to pay their entire bill upfront. This meant careful budgeting and preplanning to ensure you had enough money saved up to pay for your six-month or 12-month policy in one payment.
Nowadays, with auto insurance a requirement country-wide, many Canadian insurance companies have switched to offering monthly payments by dividing up a policyholder’s semi-annual or annual insurance payment. This often made paying for insurance more convenient and affordable for their clients. Thanks to this change, most people choose to pay their insurance premiums monthly.
Be that as it may, one thing to remember is that insurance companies generally charge a small premium on monthly payments. Insurance companies obviously prefer that you pay your bill in full, so those who can pay upfront are rewarded with a cheaper policy.
What are the main types of car insurance payments?
There are four types of payments most auto insurance companies will offer:
Full pay is when you pay the total amount of your premium with your auto insurance carrier. This is generally for a six-month or 12-month period and sometimes comes with an added discount.
Electronic Funds Transfer
Electronic funds transfer (EFT) is an authorized automatic payment that comes from your checking account or off your debit card monthly, semi-annually or annually on the same day. Just make sure you have enough funds in your account before the automatic withdrawal date to avoid your payment bouncing or entering into overdraft.
If you would prefer not to pay monthly and have it in the budget to do so, some insurance companies will offer quarterly payments, meaning you will pay every three months. This method can be more convenient for some people. You can likely also set this up for EFT.
If you are someone who prefers to pay their bills monthly, you can opt for this method which generally allows you to pay either online or by cheque. Just be sure to make your payment by the due date.
Are there any benefits to paying your auto insurance monthly?
Yes! Despite possibly paying a small premium on your monthly payments, there are several benefits, including the following:
● You will always know your due date as it is the same every month, meaning you don’t have to wait to hear from your insurer about your next due payment.
● You can set up automatic monthly payments through your bank, debit or credit card, reducing your risk of forgetting to make a payment.
● Your bill is more manageable, making affording payments much easier for people who have a fixed income or live paycheck to paycheck. Budgeting for monthly payments is often more realistic.
● You will have less financial stress in terms of having to save up money throughout the year and hoping you have enough the day your payment is due. Monthly auto insurance payments benefit anyone who struggles to save money.
● You will likely have an easier time switching providers if you decide to do so before you reach your policy renewal date.
● If you buy a new vehicle, the extra cost of the insurance is spread over several months, rather than having to pay the additional premiums upfront.
For some people, monthly payments are the best option. As not all insurance companies allow monthly payments, make sure you confirm with each company what types of car payments they offer while you are hunting for auto insurance.
What are the advantages of paying semi-annually or annually?
There are also some great advantages to paying your auto insurance in full if you are in a financial position to do so, including the following:
● You save paying the 3% service fee for the monthly option, but there is no discount provided on annual pay policies.
● Knowing your premium is taken care of for the next six or 12 months can give you peace of mind as it is one less thing to worry about.
● When you pay for your full premium, you are guaranteed coverage until your term ends. There is no added risk of your insurance company cancelling your premium due to a missed monthly payment.
Moreover, some people just find it easier to make one bill payment every six or 12 months instead of keeping track of several payments.
Is insurance paid in advance or in arrears?
Unlike most bills, where you pay for what you have already used (like a phone bill or utility), auto insurance is paid in advance.
In fact, your coverage does not start until you have paid for at least one month of your premium. Then, each payment you make will pay for the following payment period. For example, if you pay your insurance in full in March, you are covered for the next six (September) or 12 (next March) months, depending on your policy, until your next bill is due. This is to help your insurer cover the cost of any claim you may file.
Can you pay insurance premiums ahead of time?
If you have opted for a monthly installment plan, you can absolutely pay off your premiums ahead of time. There are no rules against paying off the rest of your car insurance balance early. In fact, your insurance company would likely prefer that you do. When a policyholder pays off their bill in full, this helps guarantee insurers that the client won’t cancel before their term is up.
Do you know that insurance companies can also choose to cancel your policy if you are late or miss a payment? By paying your insurance premiums early, it gives not only your insurance company peace of mind that you won’t miss a payment but also to you knowing that you won’t suddenly find yourself without insurance.
Although there are no rules to paying off your current term, there is one thing you cannot do: you cannot pay past the term’s expiration date. So, for example, if you have two months left on your insurance policy, you can only pay in advance for those two months. This is because your new term could have a new rate.
How many days in advance can you pay insurance premiums?
You can pay off the rest of your insurance premiums for your six-month or 12-month term as many days in advance as you like.
You cannot, however, pay in advance for your next term until you receive your auto insurance renewal bill. This bill is issued about 30 days or one month before the end of your current term. At that point, if you can manage it financially, you can pay off any remainder of your current balance as well as your new term all at once!
When shopping for auto insurance, make sure you compare several companies before you make a decision, as each company will likely offer something a bit different. Learn more about aha insurance’s rock-solid car insurance premiums by getting your 3-minute online quote or speaking to our expert brokers. Aha insurance — all the coverage you love with none of that mumbo jumbo you hate.