Why Monthly Payments Cost More Than Annual Payments
When you choose monthly payments over annual payments, you're essentially financing your premium. Insurance companies charge interest on these payment plans, significantly increasing your total cost.
The Hidden Cost of Monthly Financing
Monthly payments include several additional charges that annual payments avoid:
- Interest charges - Varies significantly by insurer (examples):
- Most auto insurers: ~1.3% monthly
- Most home insurers: ~3% monthly
- Intact Insurance: ~2% monthly
- Desjardins: 0% monthly
- Provincial sales tax - Typically 8% on home insurance (varies by province)
- Processing fees - Additional setup or monthly administration fees
These are examples only. Actual rates and fees vary by insurer and province. Always confirm specific terms with your insurance provider.
⚠️ Important: Credit Card Payment Restrictions
Most Canadian insurers severely limit credit card use for monthly payments:
- Desjardins Insurance: No credit cards for monthly payments, credit cards accepted for annual payments only
- Monthly payments: Typically require pre-authorized bank debits or void cheques
- Annual payments: Often the only way to earn credit card rewards on insurance
- Processing limitations: Credit card companies may classify monthly insurance as high-risk
Why Insurers Prefer Annual Payments
Insurance companies offer better terms for annual payments because:
- Lower administrative costs - One transaction vs. twelve monthly transactions
- Guaranteed payment - Eliminates risk of missed monthly payments
- Reduced churn - Customers less likely to switch mid-policy
- Cash flow benefits - Immediate access to full premium
Smart Payment Strategies
To maximize value from your insurance payments:
- Pay annually when possible - Avoid all interest charges and qualify for credit card rewards
- Use high-reward credit cards - For annual payments to earn cashback or points
- Budget monthly amounts - Set aside 1/12 of annual premium each month
- Compare total annual costs - Monthly payments + interest vs. annual payment
💳 Credit Card Rewards Strategy
Since most insurers only accept credit cards for annual payments, this creates an opportunity:
- Use a high-cashback credit card for annual insurance payments
- Earn 1-2% cashback on thousands of dollars in insurance premiums
- Pay off the credit card immediately to avoid interest
- The cashback often exceeds what you'd save on monthly payments
When Monthly Payments Make Sense
Despite the extra costs, monthly payments might be worthwhile if:
- You don't have the cash flow for a large annual payment
- You're planning to switch insurers mid-policy
- The monthly interest is less than what you'd earn investing the money
- Your insurer offers unusually low monthly interest rates
💡 Bottom Line: Annual payments almost always save money and are often required for credit card rewards. Use our calculator above to see exactly how much extra you'll pay for monthly financing convenience.