This is one of the reasons I pay my car insurance all at once

When buying a car, it’s not just the car loan payments that you have to worry about. You also have to cover the maintenance costs of your car. And depending on your living situation, you may have to pay to park your vehicle overnight.

There is also car insurance to think about. Forbes Advisor says the average annual cost of auto insurance for U.S. drivers is $2,150 for full coverage. Your premiums may be more or less expensive depending on factors that include your zip code and your driving record.

Either way, car insurance is a big expense, and you may be eager to do what you can to save money on it. One tactic that can work is paying your annual premium in one go.

My car insurer, for example, allows me to pay my insurance premium monthly. But if I pay the full premium up front, I get a small discount.

To be fair, this discount is pretty modest – it’s only about 3% of my total tab. But still, a discount is a discount and I’ll take it.

However, you should know that paying my car insurance all at once requires careful planning. And if you’re going to go that route, you’ll need to make sure you’re setting aside money for that giant bill month after month.

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A strategic approach to paying my car insurance

Many of the bills I pay each month are set to be automatically debited from my bank account. Take my mortgage payment, for example. I have it set to go out at the same time every month so I don’t forget it. At the same time, since I pay this bill every month, I don’t have to save for any big bills.

It’s different with my car insurance. For that, I have to make sure I set aside money every month so that when that giant bill arrives, I have the money.

To do this, I take the cost of my annual premium, divide it by 12, and then set up an automatic transfer to my savings account so that 1/12 of my premium is transferred each month. That way I don’t have to mess around when that bill comes.

If you want to pay your car insurance premium all at once, I suggest you do the same so you don’t end up in a situation where your premium is due but you don’t have the money. Late payment may result in fines. In a more extreme situation, you could lose your coverage entirely, leaving you to shop around for a new policy.

A good approach to any expense once a year

Anytime you have a bill or expense that doesn’t recur monthly, but rather once a year, it’s a good idea to set up automatic transfers to save for them on an ongoing basis. For example, you can also pay your life insurance once a year. So if that premium costs you $600, you’d want to make sure you’re saving $50 a month for it down the road.

You can and should take the same approach to the holiday season. Instead of scrambling in December, make a budget ahead of time, divide it by 12, and then send the money into your savings each month so you’re not forced into debt when it comes time to buy your gifts.

Paying my car insurance all at once makes sense because even though I’m not saving a lot of money, I’m still saving a little. But this system works well because I set aside money for that premium every month of the year — and I don’t put myself in a bind the month the bill comes due.

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