When my husband and I first started paying our own car insurance, we could only afford the payment schedule that had us make five or six monthly payments. We simply didn’t have the $400 or so to make a one-time insurance payment.
Now that we’re making some financial headway, we’re starting to save money to make annual or bi-annual insurance payments.
If you aren’t planning on spontaneously selling your car and relying on public transit, then you’re going to be making car insurance payments for as long as you have a car.
Rather than send the insurance company a check each month, why not pay yourself the monthly amount into a high-interest savings account and then pay the balance in full?
Doing so will keep your overall expenses as low as possible, while allowing you to earn interest on your money.
For example, our next car insurance premium is $366 for a six-month period. If we made monthly payments, due to extra fees we’d pay $65.05 each month for six months, for a total of $390.30. That’s $24 more!
By comparison, if I put $61 in my ING Direct account each month ($366 divided by 6), six months later, I’d have the full amount and I’d earn about $3 in interest at its current rate. That would bring my overall savings to $27 every six months (if my two policies were identical).
I like “paying myself” with my ING Direct savings account because I can create sub-accounts to easily separate my money.
The same tactic can be used for renter’s insurance and many life insurance policies as well. Look at your policies, and if making more payments costs you more money, you can benefit by making those installment payments to yourself.
It can be difficult at first to pay your current premiums AND put aside extra so you can pay it in full someday. But, once you get to the point where you can pay a policy in full (or in two payments), if you keep on making monthly payments to yourself, you’ll have the full amount in due time, and come out ahead in the long run.
One final thing: Some people are uncomfortable tying up their money with a one-time payment. If your money is really tight, I can understand that apprehension. Still, try to work toward eventually making one or two payments instead of six or twelve in a year.
Remember, if your car insurance policy is paid in full, then you won’t have to send that company a check for another six months.