Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Jul 14, 2021

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In a nutshell...

  • All car insurance policies are paid at least a month in advance
  • Refunds are available for any portion of an unused policy premium upon cancellation
  • Down payments are required for some policyholders when they open a policy
  • Different payment options are available and many offer a significant premium discount

Purchasing an auto insurance policy is necessary for drivers with a car note, and it’s highly recommended for those without.

Drivers who own their vehicles outright are required to obtain an insurance policy for their auto, but the policy options they’re given are far less stringent than those required for vehicles owned by a bank or leased through a dealer.

Drivers looking to purchase a new car insurance policy are encouraged to shop around for the best prices for the type of vehicle they own, and they’re also encouraged to look at the way their payment options affect the overall cost of an insurance policy.

No matter where you purchase your policy, it’s paid in advance. Policyholders have several payment options available with any car insurance company, but the first month of insurance is due upfront prior to the opening of a policy.

Your policy is always paid one month in advance. For example, if you purchase a policy on December 29th to begin on January 1st, you’ll pay January’s premium in advance.

Your payments will always be one month ahead following that initial payment. Once you make your initial policy deposit, you can choose from several different payment options:

  • Pay in full
  • Pay quarterly
  • Pay monthly
  • Automatic withdrawal

Find the best rates for car insurance by entering your zip code into our free rate comparison tool above.

Pay in Full


Car insurance companies offer two types of policies to drivers. One is a six-month policy, and the other is a year-long policy. Six months is standard, and one year is an option for most companies.

Before you choose a payment option with your insurance provider, calculate the total cost of your premium.

Insurance agencies offer drivers a significant discount if they pay the full premium in advance rather than paying a monthly premium to the insurance company.

It’s impossible to determine the precise amount you’ll receive a discount without knowing which company you are working with.

However, the common discount ranges anywhere from five percent to 20 percent in five percent increments if you choose to pay in advance.

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Automatic Withdrawal

This payment option sometimes saves you money. When your insurance company doesn’t need to send you a monthly statement or bill, they might offer a small discount. It’s not much, but it certainly adds up over time.

This type of payment method requires you provide your insurance company with your bank account information when you open your policy.

Your first month’s premium is deducted immediately, and each subsequent month’s premium is deducted on the same day each month.

This method allows you to save on postage, and it ensure you’ll never make a late payment. There’s nothing for you to do but ensure the funds are available in your account each month.

The discount for this payment option comes in the form of not paying postage, late fees, and engaging in paperless billing. A small discount is also offered by some companies because being there’s a better chance they’ll get paid each month.

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Monthly Payments

When you opt to make regular monthly payment, you still pay your bill a month in advance.

Your insurance company does not offer any discounts for this type of payment because they cannot be sure you will send them a check each month when the bill is due.

To ascertain they will receive payment each month, insurance companies tend to offer discounts to policyholders who allow them control of their bank account or pay in full in advance.

Quarterly Payments


While this payment method rarely offers a discount to policyholders, it is a great way to pay your premium in advance without fear you will make a late payment.

It’s also beneficial to those who are unsure about allowing another person or company control of their bank account debits.

Some insurance companies offer a discount for this type of payment option, but it’s small. This makes sense if you don’t want to pay each month but cannot afford to pay six months to a year in advance.

You’ll still pay in advance, but you won’t receive a bill each month.

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Car Insurance and Down Payments

Now that you’re aware of how paying your car insurance premiums in advance helps the overall cost of your premium, it’s time to discuss your down payment options.

Many policyholders call it a down payment, but it’s just an advance payment to ensure the insurance company isn’t being used by consumers.

This deposit or down payment is not always required by all insurance agencies, but it might be required for those who have a low credit score or those who have allowed a lapse in a previous car insurance policy.

The average amount of a down payment for an insurance policy is around 25 percent, though some policyholders pay as much as 50 percent of their premium. This is a one-time fee provided you no longer make another late payment or allow your policy to lapse.

When you renew your policy twice each year, you won’t pay another down payment or deposit following this initial down payment.

Prorated Cancellation Refunds


One of the main concerns policyholders have regarding their upfront payments is their refund if they choose to cancel.

If you are required or choose to cancel your auto insurance policy in favor of a new one at any point during the policy, you are issued a refund of your advanced payment.

The way this is calculated is through a prorated figure. You typically pay a month in advance, which means you’d get a half month premium refunded to you if you cancel your policy halfway through the month.

If you pay your policy in full in advance, your refund is a prorated amount of the month you’re in and the remainder of your unused policy.

For example, canceling in the middle of September means you’ll get half that month’s premium refunded to you in addition to your October, November, and December premiums.

While shopping for a new auto insurance policy, don’t forget to discuss the many options associated with payments.

Some policies become more affordable with the discounts offered through specific payment options, which could cause you to change your mind about the best policy for your family.

Finding a new policy is as easy as shopping around, but it’s often the small details that make up the biggest savings. Enter your zip code below to begin comparing car insurance companies.