But while paying the annual premium in one go is generally the cheapest option, the good news for those struggling to raise the necessary funds is that spreading the cost over the year by paying monthly does not have to push the price up by a lot.
In fact, research from moneysupermarket.com found paying monthly for motor insurance could add as little as 5.34% to the overall cost.
And opting to pay your home insurance monthly rather than annually could push the price up by just 2.74% if you go with Endsleigh, or could even reduce the cost of a Santander policy by 2.91%.
However, the difference in cost does vary so it is vital to check how much you will pay for the privilege of spreading the cost in this way. Making monthly payments increases the cost of the average motor policy by 10.68% and could result in the total cost being 15%- 20% higher than if you paid in one instalment.
The car insurance team at moneysupermarket.com is therefore urging people keen to ease the pressure on their finances by paying for insurance monthly to identify the policies that offer the best value for this before making a choice.
Pete Harrison, car insurance expert at moneysupermarket.com, said: "The cost of car insurance can be a huge strain on your finances so paying for your car cover on a monthly basis is a good way of keeping your initial outlay for car insurance down.
“However, while this may be a more convenient and manageable way to pay for your cover, it's crucial to make sure you're aware of the additional costs involved. It is also important to scour the whole market to ensure you find the most reasonably priced deal.”
Are there any other options?
Splitting your annual insurance premium, whether for motor or home cover, into monthly instalments is not the only way to avoid paying the whole amount in one go.
You could also take advantage of one of the great 0% credit card deals available at the moment to spread the cost over 12 months, without incurring any interest charges or extra premium costs.
Harrison added: "By putting the cost of the premium on to a 0% purchase credit card, drivers can pay the annual price for their policy in monthly instalments without paying interest.”
Suitable credit cards include the Marks & Spencer Credit Card, which offers 15 months at 0% on all purchases, as well as access to a generous M&S rewards scheme.
Other great options include the Tesco Clubcard Credit Card, which also gives you 15 months interest-free on purchases, plus nine months at 0% on balance transfers and Clubcard rewards on your spending.
If you would like to make further savings by earning 0.5% cashback on your spending, it is also worth considering the Capital One Purchase Plus Card, which offers 0% on purchases until September 2012.
However, you need to be disciplined if you use a credit card, and aim to pay off the balance before the end of the promotional period, and within 12 months if the promotion is longer.
Otherwise you will still be paying it off this year’s insurance after you’ve had to take out another policy next year and will also run the risk of being hit with hefty interest charges once the representative APRs kick in.
The representative APR on the M&S card, for example, is 15.9% (variable), while the Tesco card charges 16.9% (variable) and the Capital One card is 16.8% (variable).
How else can I keep my insurance costs down?
If the rising cost of motor insurance makes you wince even if you are paying it over the course of a year, then it may be time to think about taking some steps to bring it down.
The car you drive has a massive impact on the cost of your cover, so next time you change your vehicle bear in mind that a smaller, less powerful model will prove a lot cheaper to insure than a fast, sporty car, for example.
Other ways to keep your car cover costs down include taking your Pass Plus test and, of course, avoiding getting involved in accidents so that you can build up your no claims discount.
When it comes to home insurance, meanwhile, you can keep your premiums to a minimum by fitting an alarm system that is recognised by insurers and will result in a discount and by avoiding add-ons such as personal possessions cover.