How Does No-Down-Payment Auto Insurance Work?

Is car insurance with no down payment possible?

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When you buy an auto insurance policy, you'll have to make a payment before the coverage takes effect. In fact, in some states, the law requires insurance companies to collect a certain percentage of the premium upfront.

Is it possible to get the coverage you need without making a down payment? Some providers offer installment plans that allow you to avoid making the full premium payment in one lump sum, but you still must make an initial payment before coverage begins.

Installment plans spread out the cost of insurance over time, they usually require paying fees, and they typically require you to make a down payment to obtain coverage. Learn more about your choices for making auto insurance payments and the pros and cons of each option.

Key Takeaways

  • Every insurer will require at least one down payment before your coverage begins.
  • Auto insurance companies offer installment plans to help you spread out premium payments.
  • Installment plans usually require paying fees and a down payment.
  • The down payment amount can depend on the types and amounts of coverages you purchase, as well as the insurer's terms.
  • Many insurers will also base your down payment amount on the number of installments you choose.

What No-Down-Payment Auto Insurance Actually Means

When you buy car insurance, you’re entering into a contract with the insurance company. You agree to pay a premium and the insurer agrees to pay for specified losses, up to your policy’s limits. For example, if you carry collision insurance, the policy will help pay to repair your vehicle following a covered traffic accident.

Typically, insurance companies offer the option to pay your entire premium in one payment. Let’s say you purchase a six-month policy for $600 with an effective date of Jan. 1. If you pay the entire premium when it’s due, you can enjoy six months of coverage without making another payment.

If you don’t pay the premium in full, you’ll be required to pay a down payment before your coverage begins. (No auto insurance policy provides coverage without some payment.) However, many carriers offer installment plans, which allow you to spread out premium payments over the coverage term.

Installment Plan Fees

Typically, insurance companies require you to pay a fee when choosing an installment plan. Fees can range from about $5 to $8, which you must pay each time you make an installment payment.

For example, if you choose a plan with four installments with a fee of $8 per installment, you’ll pay $32 extra by the end of the policy term.

You can avoid installment fees by paying your entire premium by the due date.

Paying Installments

Some insurers offer monthly installment plans, while others offer other arrangements. Installment options may vary depending on whether you’re a new customer or a long-time policyholder.

For example, a provider may let customers choose between two or four installments, then five installments for new customers, or six installments for renewals. So if you chose four installments, you’d pay 25% of the premium each time, plus any fees.

Installment Plan Down Payments

Installment plans vary by company, and your down payment can differ depending on the number of installments you choose.

For instance, if you buy a six-month policy, and choose to pay in two installments, the insurer might require you to make a 50% down payment and pay the remaining 50% of your premium a couple of months later.

The down payment due date may also vary according to the number of installments you choose. For example, a two-installment plan may require you to make a down payment on the effective date, while a six-month plan might require the first payment before the policy takes effect. Again, terms vary by company.

Some insurance companies offer a discount to policyholders who pay their car insurance premium in full.

How Much Is a Car Insurance Down Payment?

U.S. car owners paid an annual average of $1,190 for auto insurance in 2018, according to the National Association of Insurance Commissioners (NAIC).

In part, your rate and your down payment,] will depend on the coverages and levels of coverages you carry. The amount of down payment you’ll have to pay for car insurance can also depend on your location, because most states require you to carry minimum levels of certain types of insurance.

For example, Wisconsin motorists must purchase $10,000 property damage liability coverage per accident, $25,000 bodily injury or death for one person, and $50,000 bodily injury or death for more than one person. Connecticut’s liability coverage requirements are slightly different: $25,000 for property damage liability coverages, $25,000 per person, and $50,000 per accident.

When you lease or finance an automobile, the leasing company or lender will also typically require you to carry collision and comprehensive insurance. You may also choose to add a few optional coverages, such as gap insurance, rental car reimbursement, or roadside assistance. Adding coverage increases your protection, but also increases your premium and down payment.

The number of installments allowed, installment fees, and the percentage of the premium you must pay upfront will also depend on the insurance company.

To illustrate, here are how installment plans work with four different car insurance companies operating in Massachusetts:

  Number of installments allowed Installment fee Down payment
(Percentage of premium)
Allstate 11 for new policies
10 for renewals and multi-car policies
$8
$2 for electronic funds transfers (EFT)
30% for new policies
10% for renewals
15% for multi-car policies
Foremost Monthly $5 
$10 EFT
One month’s premium
Progressive 2, 5, or 6 $5 to $8
$1 to $4 EFT
60% for 2 payments
20% to 30 % for 5 payments
16.7% for 6 payments
Vermont Mutual 2, 4, or 9
12 for EFT customers
$8
$0 EFT
50% for 2 payments
25% for 4 payments
20% for 9 payments
15% for 9 payments for new policies paid by EFT

How To Lower Your Auto Insurance Premium?

You can often improve your auto insurance rates in a number of ways. Insurers determine car insurance rates based on several factors, including your:

  • Age
  • Annual mileage
  • Coverage types and deductibles
  • Coverage history
  • Credit history (some states)
  • Driving experience
  • Driving record
  • Gender (some states)
  • Insurance claims history
  • Location
  • Make and model of vehicle
  • Marital status
  • Vehicle use

You can't change certain rating factors, like your age. However, if you have a history of violations for speeding or texting while driving, changing your habits can help improve your driving record over time, and therefore likely lower your insurance rate.

If you have a good driving history but aren’t satisfied with your insurance rate, there are several ways to possibly reduce it:

  • Shop around. Get insurance quotes from several providers and compare their rates and terms. 
  • Buy a vehicle with safety and security features such as anti-lock brakes and an anti-theft system.
  • Raise your deductibles, or what you pay out of pocket. 
  • Take a defensive driving class.
  • Drop coverages you no longer need or coverages that overlap. For example, if you’ve paid off your auto loan, and your car has a low market value, you might not need collision and comprehensive coverage.
  • Take advantage of discounts. Insurers offer a variety of discounts, like discounts for young student drivers who earn good grades and “safe driver” discounts for motorists who have good driving records.
  • Reduce your annual mileage.

Some insurers offer significant discounts for bundling auto and home or renters insurance policies.

Frequently Asked Questions (FAQs)

Where can I find cheap car insurance?

The best way to get the best insurance rate is to shop around. Request quotes from several insurance companies and take advantage of all the discount programs for which you qualify.

Why do car insurance companies require a down payment?

A car insurance policy is a contract. You agree to pay the policy premium and the insurance company agrees to pay for covered losses based on your coverages and their limits. Your coverage can’t begin until you pay the premium in full or make a down payment through an installment plan. Some state laws even require carriers to collect an upfront payment when starting a new policy.

Article Sources

  1. Massachusetts Division of Insurance. “Motor Vehicle Insurance Installment Payment Plans.”

  2. Commonwealth of Massachusetts. “Allstate Insurance Company.”

  3. Commonwealth of Massachusetts. “Vermont Mutual Insurance Company.”

  4. Geico. “Car Insurance Payments - How To Pay Your Bill.”

  5. National Association of Insurance Commissioners. “NAIC Releases 2017-2018 Auto Insurance Database Report.”

  6. Wisconsin DMV. “Minimum Insurance Requirements.”

  7. State of Connecticut Insurance Department. "Automobile Coverage Information."

  8. Commonwealth of Massachusetts. “Foremost Property and Casualty Insurance Company.”

  9. Commonwealth of Massachusetts. “Progressive Casualty Insurance Company.”

  10. National Association of Insurance Commissioners. “Auto Insurance.”