While doing my finances last weekend, I realized that my monthly auto insurance check hadn’t cleared. I have a frugal friend who works with the local agency, so I dropped her an e-mail to ask what I should do. She volunteered this bit of additional information:
Monthly sucks. You’re paying an extra $36 a year in fees for them to “handle” your account. Also, you have a “month in reserve” that you never get to use. It just sits there keeping you one month ahead, just in case. I would strongly suggest one of two options: go to statefarm.com and suffer through the millions of questions they ask and set it up on autopay. You save on the surcharge and you don’t have to mess with mail. Or….pay every six months.
Little expenses like this deprive you of money better spent on other things. (Before I switched to a credit union last year, I was paying $96 a year for the privilege of having an account at U.S. Bank.) I set up my insurance account to bill monthly when I was a broke college student; it never occurred to me to change it.
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Monthly doesn’t always suck. USAA permits pseudo-monthly payments (it is actually called extended pay plan and is something like 5 payments/6 months). Instead of paying all 6 months up front, payment is spread over the 6 month term of the policy at no additional fee. (There used to be a fee if you did not use automatic draft, but I think they have gotten rid of that fee as well.) Let’s me get a few extra dollars in float each year and makes the budget easier to track.
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I go through Grange and they do the same thing, they use automatic draft from my checking account. They send me a schedule of payments and withdrawal dates, and I enter them into Quicken. It doesn’t cost me an extra cent.
I have one checking account just for irregular expenses, and I check ahead a month or two to make sure there is enough to cover the insurance and then some! Takes only two minutes to balance the checkbook using Quicken, so it doesn’t require that much time.
This has simplified my life a lot.
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I’m an independent agent, and MOST companies will charge some type of service charge for paying monthly or quarterly. Progressive actually gives a big discount for paying your policy in full every 6 months. It can really save some money if you can afford to do so.
Also, being on monthly payments that are not EFT increase the risk of missing a payment and having your coverage lapse. Not a good thing to happen.
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From a financial perspective, more people think in monthly terms. Which is why credit card companies do so well. So I understand why monthly payments may seem like a good plan.
So one thing you can do is to setup a savings account that you pay your bills from in whatever period is required to save you the most money, 3 months, 6 month whatever. The trick is to then fund that account monthly from you standard checking account.
This way you’ll have the money on had to pay the bills in full when they come due. You will also benefit from the interest earned on the account while the money sits.
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