Should I Open a Card for Car Insurance?

A new cash back card can be worth opening for your semiannual car insurance payment, but only if your insurer lets you pay by card without a fee and you pay the card off in full. The rewards on one premium are small, so the real question is whether the card makes sense for the rest of your spending too. If the insurer charges a fee that wipes out your cash back, or you'd carry a balance, skip it. Here's how to check, step by step.

What should I check with my insurer first?

Your insurer's payment rules decide this more than any card does. Before you apply for anything, log in to your account or call and ask three things: Can I pay by credit card? Is there a fee for paying by card? And what's the price difference between paying in full and paying in installments? Compare current cash back offers.

The last one matters most. Most insurance companies offer discounts for paying an annual auto-insurance premium in one payment or using automated payments.^[1] On the other side, auto-insurance payment plans usually charge a small service fee for each installment.^[2] So paying your six-month premium in one go could already save you money, whatever card you use.

Also ask whether the discount still applies when you pay by card. Some insurers give the discount only for certain payment methods, such as a bank account draft. If a card is not allowed for the discount, the card rewards may not make up the difference.

• Does the insurer accept credit cards for this payment?
• Is there a convenience or processing fee for cards?
• Is there a pay-in-full discount, and does it apply to card payments?
• Do monthly installments add a fee?

How much cash back will you actually earn?

Here's a simple example. Say your semiannual premium is $900 and a card earns 2% back on everything. That's $18 back per payment, or $36 a year across two payments.

Now suppose your insurer charges a fee each time you pay by card. Your cash back is reduced by that fee. If the fee is higher than the rewards, you'd lose money on every payment.

Also compare against the discount. If paying in full by bank account saves you $20 and paying by card saves you nothing, the bank account wins over the $18 in cash back. Do the math both ways before you decide.

A quick calculation shows whether cash back on one premium is worth the trouble.

Could a welcome offer change the answer?

Sometimes. A welcome offer usually asks you to spend a set amount in the first few months. A premium of several hundred dollars could cover a good chunk of that minimum spend, which is a real reason to time a new card with your payment.

But don't let the offer drive you into spending you wouldn't normally do. If you'd have to put purchases on the card just to hit the minimum, the bonus may cost you more than it's worth. A sign-up bonus is only a win if you were going to spend that money anyway.

If you're curious about whether bonuses are worth the effort, our guide on sign-up bonuses and minimum spending walks through the trade-offs.

What if you can't pay the card off right away?

Then skip the card. Rewards only pay off when you clear the balance each month. Consumers with revolving credit-card balances accounted for 94% of interest and fees charged but only 27% of rewards earned at major issuers.^[3] In plain terms, carrying a balance is how cash back turns into a net cost.

Say you put a $900 premium on a card and pay only $100 a month. You'd still owe $800 after the first month, and interest starts on what's left. A few dollars in rewards won't cover that.

If you want time to spread out a premium, a different tool may fit better, such as a 0% intro APR card with a clear payoff plan. Just know that if you don't pay it off before the intro period ends, the remaining balance starts collecting interest.

Should you open a new card or use one you already have?

If you already have a cash back card with a decent rate and your insurer takes it without a fee, use it. You get the rewards with no new application, and you avoid a hard credit check and a new account.

A new card makes more sense when your current one earns very little, or when the new one would also help with groceries, gas, or other regular bills. Then the insurance payment is just one more spend category, not the whole reason.

Cards like these are generally recommended for good to excellent credit. If you're unsure where you stand, check your credit before you apply, since a new application can briefly affect your score.

Last, remember that automatic payments can help you avoid missed due dates, which is how many people lose their coverage. Whichever card you use, make sure the payment is set up so it doesn't lapse.

Frequently Asked Questions

Should I open a new card just for my car insurance payment?

Usually not on its own. Cash back on two premiums a year is small. A new card makes sense if it also fits your everyday spending and your insurer accepts cards without a fee.

Does paying my premium in full save money?

It can. Many insurers offer discounts for paying in full or using automated payments, and payment plans often add a small fee to each installment. Compare your insurer's pay-in-full price with the installment price.

What could make a card a bad choice for insurance?

A card fee from the insurer, a balance you can't pay off, or a minimum spending requirement you'd stretch to meet. Any of these can cancel out the rewards.

Can I pay my car insurance premium with a credit card?

Many insurers accept credit cards, but not all do, and some add a fee. Check your insurer's website or call to confirm before you plan around it.

Will a new card help me meet a welcome offer spending requirement?

It could. A semiannual premium may cover part of the required spend. Just make sure you'd be spending that money anyway and can pay the balance in full.

Is it better to use a card I already have?

Often, yes. If your current card earns decent cash back and the insurer accepts it without a fee, you get the rewards without opening a new account.

What if I can't pay the full premium at once?

Compare the installment fees with the interest a card would charge. Carrying a balance on a regular card can cost more than any rewards you earn.

The Bottom Line

Don't open a new card for car insurance alone. The rewards on two premiums a year are small, and your insurer's fees and discounts can outweigh them. Start by asking about card fees and the pay-in-full price.

If your insurer takes cards without a fee and you'd pay the balance in full, a cash back card that also fits your everyday spending could be a good addition. Check out top offers available now and compare them against what you already carry.