Should I Pay my Insurance in Instalments?

Should I Pay my Insurance in Instalments?

When you take out insurance then you may have the option to either pay a yearly amount on a lump sum or pay it in monthly instalments. It is worth understanding more about each of the options so that you can pick the best one.

Monthly Instalments

Paying something in instalments means that it is easier to manage. You will not have to find a lump sum of money to pay for it all at once but you will be able to spread the payments over a year. This means that you will just have to find a small amount each month rather than trying to find the money to pay it all. This can be a great thing to do as long as there is no charge for it. However, with most insurance companies there will be an interest charge. It is worth checking to see if there is one and how much it will be.

Once you know the charge you can calculate how much extra you will pay as a result of paying in instalments. Then you will be able to decide whether you think that it will be worth. Obviously spreading the payments can be easier and you may think that you would be happy to pay more for this. It might be that you would rather not pay extra, but you have no choice as you cannot afford the lump sum.

Lump Sum

Finding a lump sum of money is not always easy. This will depend on what your financial situation is like and how big the lump sum of money is. Some people will be able to manage it easily and will like the fact that the bill is paid and can be forgotten for the year. However, if there is the option to pay in instalments and no interest is charged (so it is the same price as paying in a lump sum) then it makes sense to pay the instalments. This is because you can hold onto the rest of your money and put it in a savings account and earn interest on it.

Which is Best?

It can be cheaper most of the time to pay in a lump sum rather than instalments. This means that it would seem to make sense that this was the best option. However, if the price is the same, then it could make sense to pay in instalments. However, on a personal level you may have different ideas about what you think is best. You may not be able to afford a lump sum or you may rather pay the lump sum, even if it is no dearer to pay in instalments, so that you can get the bill paid. Some people would rather just get it done so that they do not have to worry about it.

Future Planning

If you wish that you had enough money to pay a lump sum but you do not, then it can be worth planning better for next time. It is likely that you will have to renew the insurance in a years’ time and so you will have some time to save up towards paying it in a lump sum next time. This could be tricky as you will also be paying the monthly instalments but it will not be impossible. You will need to calculate how much you need to save (bearing in mind that premiums tend to go up year on year) and try to put that much aside each month so that you have enough to pay the premium in a lump sum next time. This will take self-discipline and determination. You will need to cut back on your spending in other areas in order to do it and you will need to make sure that you do not dig into those savings and spend them on something else. It is worth having a written reminder as to why you are saving the money so that you can use it to motivate yourself when you feel that you wish had more money to spend on other things. It will help you to remember your goal. You will only have this problem for a year, as once you have paid one lump sum, the second year you will just have to save up towards the following year and will not have to pay the instalments of insurance as well. You may want to do this with a selection of different insurance products and it may be that you need to start with one for one year and then pick another the following year. It will take time but in the run you will have a system where you will be able to save a significant amount of money. It will be hard to start with but worth it in the end.