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

There’s also auto insurance to think about. Forbes Advisor says the average annual cost of car insurance for U.S. drivers is $2,150 for full coverage. Your premiums might 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 might work is paying your annual premium in one fell swoop.

My car insurer, for example, gives me the option to pay my insurance premium monthly. But if I pay the entire premium upfront, I get a small discount. 

Now to be fair, that discount is fairly modest — it’s only 3% or so of my total tab. But still, a discount is a discount, and I’ll take it.

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

A strategic approach to paying my car insurance

Many of the bills I pay every month are set up to get debited from my bank account automatically. Take my mortgage payment, for example. I have it set to go out at the same time every month so I don’t forget about it. At the same time, because I’m paying that bill every month, I don’t have to save up for a single large bill. 

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

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 gets moved over every month. This way, I don’t have to scramble when that bill comes in. 

If you’re looking to pay your auto insurance premium all at once, I suggest doing the same so you don’t run into a situation where your premium is due but you don’t have the money. Being late could result in penalties. In a more extreme situation, you might lose your coverage altogether, leaving you to have to shop around for a new policy.

A good approach to any once-a-year expense

Any time you have a bill or expense that doesn’t recur monthly, but rather, rolls around once a year, it’s a good idea to set up automatic transfers so you’re saving for it consistently. For example, you might pay your life insurance once a year, too. So if that premium costs you $600, you’d want to make sure you’re saving $50 a month for it along the way.

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

Paying my auto insurance all at once makes sense because even though I’m not saving a ton of money, I’m saving some nonetheless. But this system works well because I’m allocating money for that premium every month during the year — and not putting myself in a tight spot the month that bill comes due. 

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