Insurance...What's with the screwy payment schedules?

I have an auto policy which costs about $1200 a year. For this I’m billed, but not as you would expect, $100 a month. Instead, after a modest down payment, there’s another payment expected in six weeks, and again after six more weeks, and so on. These payments work out to about $300 a pop, so the entire policy is paid up after about six months.

Another policy I used to have was issued for six months, and for that I had to pay four monthly payments, and then nothing for the last two months. I’ve seen still other policies that call for alternate month payments.

Why do insurance companies do this?

I’ve wondered this myself. My policy is supposedly “billed” every six months, but I don’t actually get a bill every six months; I get a bill every month. But that bill doesn’t ask for 1/6th of the cost of my six-month policy, it asks for 1/5th! And then on the 6th and 12th months, I don’t have to pay anything.

I always figured that this was due to the complications that occur when you lapse on your payments for insurance… If you miss a payment, they have a specific time and date that your coverage stops, and your coverage starts up again the minute you get paid up. So maybe they get you all paid up a little early to avoid lapses (and thus disputes) caused by people who are habitually a few days late.

I would communicate your confusion with your insurance agent, and get it straightened out.

For many years, we paid for auto insurance every six months. We only received bills every six months, approximately one month before the next payment was due.

We finally decided that it was easier to budget the insurance payments if we paid every month. So we talked to the insurance agent, who worked out the paperwork so that our car insurance and life insurance are both paid in a single monthly installment. We still receive the auto insurance statements every six months, but each statement’s balance is divided by six and deducted from our checking account on a monthly basis.

If your insurance agent won’t/can’t straighten out the statements, shop around for another agent or insurance company.

Auto insurance has no grace period, but notice must be given of cancelation (even for non-payment)
So as a result most policies have you paying early ie with a front loaded schedule.
So for example you have a yearly contract it might only have 10 payments due during the first ten months, and then 2 months before the due date, you get a bill for the following year due 1 month later (11 months after the effective date). If you were to not pay that bill, 20* days before the end of the policy you would receive a cancelation notice saying that coverage would end on the last day of the policy.
Some companies do carry this to an extreme.

*May be more or less, varies by state