Key Takeaways
- Paying with a credit card is always preferable to going without the required insurance.
- You may be able to qualify for more reward points by using your credit card to pay monthly premiums.
- You must make sure to pay more than the minimum credit card payment amount to avoid accruing debt.
- Overextending yourself on a credit card can hurt your credit score.
Most home and auto insurance companies allow customers to pay their premiums with a credit card while some life and health insurance companies do not or they charge a fee. Your home and auto insurance companies may also charge a convenience fee. However, paying with plastic may be just that–more convenient.
Whether or not you should use credit cards to pay your car insurance bills largely depends on your financial situation. If there is no alternative to paying for it out of your checking account, there’s no doubt that it makes sense to pay for insurance with a card instead of losing coverage. However, don’t do a cash advance to pay bills. Simply pay directly with the card. Otherwise, you may be looking at an APR of 24% or even higher!
If you get a substantial discount for paying the yearly cost of insurance upfront, putting the bill on a low or no-interest credit card may or may not be cost-effective. Each policy and each insurance company is different so you’ll need to do some math before you know which option is more in your favor.
Also, take into consideration that eligibility and cash back and travel rewards may come with using a credit card to pay your insurance bills. Again, it’ll be important to compare the cost versus savings first.
Here are the pros and cons of using a credit card to pay your bills:
Pros of Paying Insurance Premiums With a Credit Card
- Convenience in having one place to pay all your bills.
- You won’t lose insurance coverage due to nonpayment.
- Your insurance won’t increase due to a lapse in coverage.
- You won’t put yourself at risk of the fees and penalties associated with driving while uninsured.
- You may pay less in interest than making use of the insurance company’s payment plan, depending on what their surcharges are versus the interest you’d pay using a credit card or transferring your balance to a zero or very low-interest credit card.
- If you’re good at paying more than the monthly minimum on your credit card, you’re building credit.
- If you pay off balances in full in a relatively short period of time, you’ll get your credit on that card extended for a higher limit.
- If you place payments on auto pay on your credit card, you’ll never be late paying your insurance bill.
- Depending on your card, you may earn more points and rewards if you use your credit card versus paying directly.
- If you’re not good at tracking your spending, when using a credit card, you’ll have all the transactions at your fingertips.
- Using a credit car can help meet sign-up bonus requirements.
Cons of Paying Insurance Premiums With a Credit Card
- Some health insurance companies do not allow credit card payments.
- Some life insurance companies do not allow credit card payments and of those that do, some may charge a fee.
- If you’re not careful, you may pay more in interest rates than you’d like.
- You may hurt your credit if you can’t pay the monthly minimum on your credit card balance.
- If you’re racking up all your bills on a credit card and not paying them down, you may increase your credit utilization ratio, which is when you owe significantly more on a credit card than your line of credit. This will hurt your credit score.
- You may be trying to maximize your rewards points without doing the math. See what the dollar value of the rewards points is and compare that dollar amount with the fee amount.
- If you only pay the monthly minimum on your credit card balance, you’re paying a lot more for everything you charge on that card, including your insurance.
- There may be a convenience fee from your insurer and/or credit card company for using your credit card to pay bills, including your insurance.
- Your insurer may not accept the type of credit card you have and are not required to accept it.
Tips:
- Always do the math and see which is greater, the pay-in-full discount or the interest you’d pay on the credit card based on how long you think it’ll take you to pay off the balance.
- If you have any offers on a balance transfer to a card and you’re in financial straits due to inflation, take the offer and pay your insurance premiums with a different card then transfer it to the zero% one.
- Before you take the leap and start paying your insurance premiums (and other bills) using your credit card, it’s a good idea to see how much you need to pay bills without a credit card first. Then begin using your credit card and see what the difference is. You can always opt out of using your credit card if you’re paying much more in fees.
- Find the best rewards credit card that will earn you points.
- Compare insurance rates to make sure you’re paying as little as possible before you start charging your premiums. You may save so much that you won’t need a credit card to pay. You can still pay with a credit card and in full if you determine your points are worth it!
Bonus Tips: What a Lapse in Insurance Means for You
- A lapse in home insurance will mean a more expensive rate when you go to buy a policy.
- A lapse in life insurance may terminate your policy and you will lose your death benefit and savings account associated with the life insurance policy.
- A lapse in car insurance may lead to fines and penalties, as well as high out-of-pocket costs to repair vehicles. You’re also looking at a much more expensive car insurance rate in the future and possibly the need to file an SR22 to prove you’re insured.
- A lapse in health insurance is a bad idea because you never know when you’ll fall severely ill or will get severely injured.
Credit Card Insurance Payments FAQs
Can you use a credit card to pay for commercial insurance for a business?
Yes, pretty much every kind of insurance allows for credit card payments, except most health and life insurers, but your company may only accept certain credit cards and are not obligated to do otherwise.
What happens if I auto-pay my car insurance on a credit card and the card reaches the limit?
The payment won’t be made if you’ve reached the limit on a credit card. You will most likely be contacted by the insurance company for non-payment after the grace period. If you do not make a payment within a matter of weeks, you will lose coverage.
Does it hurt my credit to open a zero-interest credit card?
It’ll only hurt your credit score to open a zero% APR card if you’ve already accumulated many cards and don’t pay more than the minimum on them and they are accruing interest. If this is the first time you’re making use of a deal, it won’t hurt your credit as long as you use the card responsibly.
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