Monthly PaymentCalculator

Why paying monthly costs more

Paying your insurance monthly instead of in one annual lump sum is really a small financing arrangement: the insurer (or a finance company) fronts the cost of the year's coverage and charges interest to spread it across instalments. In Canada that financing charge is usually a few percent — this calculator uses about 1.3% on auto premiums and 3% on homepremiums, a common range, though your insurer's actual rate may differ.

Home insurance also carries an 8% provincial sales taxin Ontario. That tax is part of the cost of the policy itself rather than a charge for paying monthly — you owe it whether you pay monthly or in one annual payment. We include it in both totals, so the “extra cost of paying monthly” reflects only the financing interest, not the tax.

How the financing charge adds up

Because the interest is charged on the premium, the dollar cost scales with how much you insure. On a $1,200 auto premium, a 1.3% financing charge adds about $16 over the year; on a $1,200 home premium, 3% financing adds about $36. Each figure is modest on its own, but it is money you keep if you can pay the year up front — which is why many people who can afford the lump sum choose to.

Ways to pay less

• ✓ Pay annually to avoid the monthly financing interest entirely
• ✓ Ask whether your insurer offers a 0%-interest instalment plan — some do
• ✓ If you pay the annual premium by rewards credit card, factor in the points you earn
• ✓ Watch for a larger first-month down payment, which some monthly plans require