Car insurance is something we all have to have to drive legally, right? But sometimes getting a policy costs more than the budget allows. In these types of situations there is something known as month-to-month car insurance. This insurance offers you all of the protection of standard car insurance with a monthly payment option.
It is important to understand that there are pros and cons to month-to-month car insurance. For some people it is the right option, for others it’s not. Before you choose this type of car insurance, you need to know how it works and how it will affect your finances.
Monthly Car Insurance Explained
Month-to-month car insurance is also referred to as monthly car insurance. This is a better term because it more accurately describes what is taking place here. For example, if you were renting an apartment on a month-to-month lease, it would be completely open-ended with either party being able to back out within 30 days. Monthly car insurance does not work that way.
When you purchase monthly car insurance, you are still purchasing a policy that extends for either 6 or 12 months. The “monthly” part of the equation simply applies to how often you are making payments. Rather than paying the full policy up front, you are making monthly payments right along with your rent, utilities, and so on.
As for what monthly car insurance covers, that depends on your provider. The most common types of coverage are:
- Standard liability
- Personal injury protection (PIP)
- Uninsured/underinsured motorist (UM)
- Collision and comprehensive
- Full glass coverage.
Benefits of Month-To-Month Car Insurance
There are two main benefits of purchasing your car insurance month-to-month. The first comes by way of your budget. Just as some people find it more affordable to budget their utility bills over a 12-month span, it is often easier on the monthly budget to spread insurance payments throughout the year.
The second benefit is a low down payment. In most cases, the down payment is no more than a single month’s premium. There are even some insurance companies willing to allow drivers to walk away with insurance without requiring any down payment at all.
Disadvantages of Month-To-Month Car Insurance
The primary disadvantage to monthly car insurance is that, in the long run, it ends up costing you more money. There are two reasons for this.
First, it costs your car insurance company every time they have to process a payment. To make up for the additional costs, they tack on fees and surcharges. If you total up all of your monthly payments, you will find that you are paying more over the life of your policy than you would have paid had you chosen the upfront payment option.
Second, you are likely to be offered the minimum amount of coverage allowed by law. By paying every month you are subjecting your insurance company to a greater risk of loss; losses they will attempt to mitigate by limiting your coverage.
If you truly cannot afford to pay your entire car insurance bill up front, monthly insurance at least gives you the option of keeping your car on the road. However, we would urge you to do your best to avoid the month-to-month option if you can.
Try putting away some money into savings right now if you know you are going to need new insurance in the future. By saving, you’ll be able to pay for your new policy in full, upfront. Then you can take the money you would have paid toward monthly premiums and put it into savings for renewal time. You’ll earn interest and pay less for your insurance.