When you’re looking for a new insurance provider, comparing rates or even just updating a personal budget, it’s important to know what your monthly insurance costs are.
Frequently, insurance companies provide your rate as an annual premium. Typically, paying off the premium in one lump sum will result in a discounted or lower overall fee. Insurance companies also allow you to pay monthly, but usually add an installment fee. In this article, Part 1 discusses the importance of knowing your monthly fee, Part 2 shows you how to calculate monthly costs, and Part 3 explains how to compare the results.
Part 1 of 3: The importance of knowing your monthly premium
There are a few reasons why you might want to know what your monthly insurance cost would be. You may want to compare what you would be paying monthly versus what you would pay for a full year at once. Or, you might want to save up so you can pay your insurance in full the following year, receiving any possible related discounts and not be penalized with any additional installment fees.
Whatever the reason you may have, knowing exactly how much your car insurance costs you each month is an important part of being financially educated.
Part 2 of 3: How to do the math for monthly insurance costs
With possible discounts and additional fees, how do you figure out what the average monthly cost of your would be?
To determine what the average cost of car insurance would be per month you can utilize one of the many online tools available through such insurance providers as All State
, Liberty Mutual
, or GEICO
, among others. These tools will break down your rates and show you exactly what you will be paying.
Because insurance companies typically charge additional installment fees or may provide a discount for paying one year’s insurance premium at once, figuring out your average monthly insurance cost will differ if you pay monthly or if you pay annually.
Let’s use $1,200 as an example premium, with a $100 discount for paying in full.
If you pay annually and have no installment or other fees, you divide your annual premium by 12. To determine what your monthly costs would be with our example premium, you can use this formula:
($1,200-$100)/12 = $91.66.
(Annual premium-discount)/12 months = monthly rate
Your monthly car insurance cost, if paying in full in advance, would be $91.66 per month.
If you’d like to pay monthly, you may have installment fees that differ by provider. Through SafeCo insurance
, installment fees are $5 per month. To determine what your monthly costs would be, you can use this formula:
$5 x 12 = $60 installment fees annually
Installment fee x 12 months = annual fee
$1,200 + $60 = $1,260
Annual premium + installment fees = annual premium with fees
$1,260/12 = $105
Annual premium/12 months = monthly rate
Part 3 of 3: How to compare your results
In our example above, paying the annual premium up front results in a $91.66 monthly premium, while paying monthly resulted in a $105 monthly premium. This represents a more than $13 monthly difference, or a little more than $160 per year.
Looking simply at your annual rate may not give you the full picture of your car insurance costs. When every little bit of savings counts, knowing exactly what your average monthly rates are can help you budget and take advantage of possible discounts. Knowing exactly how much to budget for your monthly car insurance costs can help make sure your insurance coverage stays in good standing and is available when you need it.