Suppose you are a car owner or plan to be one soon. In that case, it is advisable to learn about car insurance, not just the concept and importance, but also different terminologies and their impact on the policy. Today, we will discuss one such insurance term and examine its essential aspects in detail. We are talking about ‘Premium’ and its two payment options: annual and monthly.
We are sure you must have heard about insurance premiums, but knowing about the annual and monthly payment structure is rare, yet essential, as it impacts your budget and finances. So, without any delay, let us begin the in-depth discussion on Premium.
Starting with the basics …
Car insurance premium - An overview
What is a car insurance premium?
It is the amount of money paid by the policyholder to the insurance company in exchange for coverage or protection of their belongings, in this case, the car.
By paying the premium, you, the car owner/policyholder, are financially protected from unfortunate events such as theft, accidents, collisions, natural disasters, fire, vandalism, and other similar risks.
When is the premium paid?
It depends on the insurer and your policy terms; the premium can be paid per month, annually, or semi-annually.
Why is the premium different for everyone?
Not all policyholders pay the same premium; the rate varies depending on factors such as the driver’s age and driving experience, car model and make, driving location, claim history, and traffic violations.
For example, a new driver living in Metro Manila with a new SUV will be perceived as more premium compared to someone living in Davao City who has been driving a compact sedan for a while.
How is the premium calculated?
To calculate the premium, insurers consider all the risk factors associated with the car owner and the car, including the vehicle's market value, the coverage included in the policy, the deductible amount, and the status of any add-on coverages in the plan.
Photo from FreepikCar insurance premium - Types of payment plans
Your insurance premium payment plan mostly depends on your insurer’s offering. There are three premium payment options available: annual, monthly, and semi-annual. Let us discuss each in detail -
Annual car insurance premium plan - As the name suggests, here the policyholder pays the full premium upfront for a year’s worth of coverage. This plan is considered the most cost-effective, thanks to its lower charges.
Semi-annual car insurance premium plan - Some insurers also offer semi-annual and/or quarterly payment plans, providing a middle ground for clients. It is a more flexible payment option compared to an annual plan and is less expensive than monthly instalments.
Monthly car insurance premium plan - Here, the insurance cost is spread evenly over 12 months. It is easier to manage on a tight budget; however, the overall cost is high compared to annual and semi-annual plans, due to survival charges.
Also Read: Looking to cut insurance costs in 2025? Consider buying one of these cars
Annual vs. Monthly car insurance payments - Pros & Cons
Let us now discuss the pros and cons of both yearly and monthly car insurance payments to help you choose the one that best suits your situation.
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Monthly car insurance payments
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How to choose the best payment plan?
To choose the most suitable premium payment plan for yourself, it is essential to conduct some research first, which includes assessing your finances and budgeting habits. Additionally, it's critical to know your plans for your car: are they long-term or short-term? Here are some tips -
Assess your monthly income and expenditure - If you are salaried, opt for a monthly plan. However, if you have substantial savings and no significant upcoming spending, an annual plan could be considered.
Know your preferred payment frequency - If one-time payments are your thing, go for an annual plan; else, look for more frequent payment options.
Take into account your emergency savings - Choose a payment plan that doesn’t disturb your emergency funds.
Consider your vehicle ownership plan - Whether long-term (more than 5 years) or short-term. An annual plan is recommended for policyholders with long-term ownership plans.
Photo from PolicyBazaarTips to save on car insurance
- Choose your deductible wisely - While a higher deductible leads to lower premiums, it is essential to consider the affordability of the deductible amount at the time of claim.
- Don’t forget the no-claim bonus - Many insurers offer premium discounts to policyholders with no claims in the past year. So, make sure to take advantage.
- Compare and analyse - If you are taking out a new policy or renewing an existing one, it is advisable always to compare quotes. By spending a few minutes on research, you might save thousands of pesos.
Also Read: Guide to renewing car insurance in the Philippines
Common myths about car insurance premiums
- The monthly plan is more expensive; this is not always the case, and some insurers offer promotions.
- Only new cars can benefit from annual payment plans; however, even used cars can benefit from yearly coverage discounts.
- Switching providers can hurt your record; however, it can also get you better rates and coverage, especially if you have a claim-free record.
Bottom line
One of the most common issues that aspiring policyholders face is deciding between an annual and a monthly premium. The debate titled annual vs. monthly insurance premium is a never-ending one; however, there is a way out. So, if you are someone who prioritises budgeting and flexibility, the monthly plan is best for you; however, if you are interested in better perks and lower overall cost, then the annual plan is for you.
Remember always to compare, ask questions, and analyse your requirements before making a final decision. This is the key to maximising your peace of mind behind the wheel.
FAQs
Q1. What does the term car insurance premium mean?
Ans. The car insurance premium is the amount of money a policyholder pays to benefit from the coverage provided by the insurer. Like CTPL, comprehensive, and other add-ons, if included.
Q2. What is cheaper: paying a premium annually or monthly?
Ans. Typically, annual premium payments are considered more affordable because they do not include any additional fees or interest charges. However, it’s best to confirm the cost with your insurer.
Q3. Do all insurance providers in the country offer a monthly premium payment plan?
Ans. Not necessary. Therefore, all policyholders should check with their insurer about the available payment plans.
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Q4. Can I switch from a monthly to an annual plan mid-year?
Ans. It depends on the insurance provider; while some allow such a switch, others don’t. Additionally, the policyholder may need to pay off the balance first before making a switch.
Q5. Are there any penalties for missing or late monthly premium payments?
Ans. Yes, mostly a missed payment leads to late fees and, in some cases, even cancellation of the coverage.
Q6. How can I ensure that I am not overpaying for insurance coverage?
Ans. The best way to ensure you aren’t overpaying is to compare policies from different providers. You can use online tools for comparison.
Q7. What if I cancel my annual policy? Will I get a refund?
Ans. Yes, you will get a refund. However, you may incur cancellation fees.
Q8. Can I pay the premium via credit card instalments?
Ans. Yes, many insurance providers allow policyholders to make payments by credit card.
Q9. Is CTPL cheaper compared to comprehensive insurance?
Ans. Yes, CTPL is cheaper; however, it offers limited coverage (only third-party injury and death), which is nothing compared to comprehensive insurance's wide coverage.
Q10. Which is considered the best option for a new policyholder: an annual or monthly plan?
Ans. An annual plan is recommended because it offers better savings and coverage.
Also Read: Understanding car insurance deductibles in the Philippines
