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Car Insurance Payment Methods

Here's what you need to know...
  • Most insurance companies accept cash, check, money orders, or an electronic funds transfer
  • You can pay your premium in a single payment or in monthly installments
  • If at all possible, avoid putting the charge on a credit card as this will end up costing you more money
When drivers purchase a new auto insurance policy, they are inundated with a long list of payment options, both regarding how many payments they want to make and how they want to make them.

Though every insurance company is free to set parameters as they see fit, a typical scenario has the insurance company offering options including a single payment, two or three installments, or monthly installments.

You can pay for your policy with cash, check, or money order, or some electronic funds transfer.

To make the concept of auto insurance payments a bit easier to understand, we’ll break the topic down into the two previously mentioned categories: number of payments and payment method.

What you decide about both categories will have at least a nominal effect on your overall cost.

Keep in mind that your total cost is more than just the premium price quoted by the insurance company; it also includes any fees and surcharges you incur based on your payment choices.

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Single Payment Option

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Beginning with the number of payments you want to make, the single payment option is your best choice if you can afford it.

This option means that you pay for your entire insurance policy up front so that it’s taken care of and you don’t have to worry about it any longer.

The biggest question for many people considering a single payment is whether your policy term is six or 12 months. Depending on whom you ask, there are a few reasons why some insurance companies choose the six-month policy while others go for a full year.

Some suggest it’s an effort by insurance companies to reduce the number of cancellations for nonpayment.

It generally takes someone three or four months to get into financial trouble to where they cannot afford their auto insurance.

The shorter the individual policy terms, the less likelihood there will be cancellations.

In many states, like Maine, insurance companies have the legal right to terminate a policy for nonpayment.

They also have the right to refuse to provide you coverage in the future should you have multiple nonpayment cancellations on your record and that can be very frustrating!

If you can pay your full policy upfront, you can avoid installments fees and completely eliminate the risk of a cancellation for nonpayment.

Two or Three Installments

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Almost every car insurance company offers the option of two or three installments to make purchasing car insurance a bit more affordable.

On a six-month policy a down payment plus two installments is the norm while 12-month policies favor the three-installment plan.

In essence, the insurance company takes your total premium, divided by the number of installments, and adds installment and processing fees to determine your payments.

This option will cost you slightly more than a single payment because you are adding installment and processing fees. These fees are not usually more than $10 or so, making it fairly affordable if you decide you have to go this option.

Monthly Installments

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Your last option in terms of how many payments you want to make is to simply make one payment every month. On a per-payment basis, this is obviously the least expensive choice.

However, when you add up the total amount of money you’re paying over the course of your policy term, you’ll find you are paying significantly more through monthly installments than you would with a single payment.

All of those installment and processing fees simply add to the cost of your total bill.

If you can avoid monthly installments, it makes wise financial sense to do so–even if that means you cut back on other expenses for the next six months and put that money into a savings account.

Once you pay for your entire policy in a single payment the first time, you can then take the money you would have paid in monthly installments and set it aside for your renewal.

In this way, you’ll always be ahead of the game and getting the best price possible.

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Cash Payments

When it comes to the method you choose for paying your insurance premiums, you have several options here as well.

One would like to think a cash payment as an option, and sometimes it is, but not always.

According to the Arizona Foundation for Legal Services and Education, federal law states that cash is a legal tender for all debts, but then goes on to define debts as money owed for services already rendered.

Based on that definition, it’s accepted that a business cannot refuse cash as payment for a product or service the customer has already received.

They can, however, refuse it for goods and services to be delivered in the future.

Since auto insurance is a product that is continually offered over the life of the policy term, insurance companies are well within their rights to refuse a cash payment.

However, that same federal law requires they inform their customers prior to the transaction that cash is not an option.

If you purchase barebones auto insurance for a company that offers monthly installments, they will sometimes take cash payments at their local offices.

More often than not, however, today’s drivers are paying for their insurance through some other means.

Checks and Money Orders

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Though electronic funds transfers are gaining in popularity, checks and money orders still seem to be at the top of the list.

Those who pay by check are usually just putting it in the mail by whatever payment frequency they agreed to at the start of the policy term.

Be advised that if you’re going to pay with a check or money order through the mail, you may not have the luxury of five or six days before having to make sure there’s enough money in the account to cover it.

Years ago, insurance companies started using check-processing companies to handle all their incoming payments.

Their processing typically added two to three days to the total amount time between when your check went into the mail and when it was cashed.

But with check processing companies now using electronic means to fulfill their tasks, those extra days have been all but eliminated.

According to the U.S. Department of the Treasury, check-processing companies can now just scan your personal check and submit it as an electronic funds transfer (EFT) that is processed instantaneously.

If you send a check to a ZIP code with two-day delivery, for example, you need to make sure there’s enough money in your account within a day of sending the check.

With money orders, none of this is a problem because you paid cash to obtain the money order.

Electronic Funds Transfer (EFT)

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The electronic funds transfer option includes several other options of its own. The one most of us will recognize the bank debit card.

With the bank debit card, you are essentially giving your bank authorization to transfer funds from your account to that of your car insurance company. But keep in mind that a debit card is not a credit card.

You must have the funds in your account at the time of your transaction, or it will be rejected.

If you don’t have a debit card there are some other options:

  • Credit Card – Paying with a credit card is easy and convenient if you don’t have a debit card and don’t want to pay cash. But always remember your credit card company is charging you anywhere from eight to 20 percent in finance charges.
  • Electronic Check – An electronic check is similar to a debit card. The only major difference is, rather than giving your insurance company your debit card, you’re simply providing them with your bank account number and routing information.
  • Bank Transfers – It’s very common for larger car insurance companies to offer online payments that include bank transfers. You can set up bank transfers as one-time payments or automated, recurring payments.

However, you choose to pay for your car insurance, and regardless of how many payments you make per policy term, just be sure you keep your car insurance policy in force as long as your car has license plates and registration.

In most states, it’s not worth the trouble or the possible penalties to allow your car insurance to lapse.

Now that you’re armed with some good knowledge about payment options, it’s time to start searching for your car insurance policy. Enter your zip code below to access car insurance quotes from multiple companies today!

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