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The Pros of Pay-As-You-Go Auto Insurance

pay as you go insurance

Do you drive less than 10,000 miles a year? If so, that puts you in with the majority of American drivers; about two thirds of them. According to the United States Department of Energy Efficiency and Renewable Energy, the national average is between 10,000-12,000 miles a year. Standard auto insurance is based on the national average. Essentially, this means that most drivers subsidize auto insurance for the smaller number of drivers who drive more.

New auto technology allows insurance companies to base rates on the way drivers actually use their cars. New kind of policy goes by a number of names, including user-based insurance and pay-as-you-go insurance.

Let’s learn more about the pros of pay-as-you-go auto insurance below.

How it Works

Many auto insurance companies, both large and small, offer pay-as-you-go-insurance. You have a choice of policies available to you in every state, each with a plan based on demographics and geographical location. When you buy a pay-as-you-go insurance, the insurance company installs a device on your car that keeps track of your mileage. Depending on which state you live in, the device may also track your speed, brakeage, and mileage.

Your driving habits greatly influence the price of your monthly premium. If you drive aggressively or carelessly, or drive more than the average driver, pay-as-you-go policies won’t save you money. However, if you have a clean driving record, you can save a bundle. A great way to easily see if your driving record could result in major good to go auto insurance savings is by comparing rates from top insurers with CoverHound’s full service comparison and insurance shopping platform.

However, if you were to get involved in an accident and your device tracks more than just mileage, the insurance company will be able to use the data to know if you were at fault. That can be both good and bad for you! Some critics of these policies think that having the insurance companies collect this data comes too close to Orwell’s Big Brother. It’s certainly good for you to investigate the policy and procedures of your potential insurance provider carefully to make the best decision for you.

The Pros of Pay-As-You-Go Insurance

The bottom line, pay-as-you-go insurance will save you money. You might get a five or 10 percent discount by just agreeing to install the tracking device. Insurance companies typically promise their customers will save at least 20 percent and maybe as much as 50 percent if they agree to the driving conditions set by the insurance provider. Pay-as-you-go insurance is intended as a reward for good driving. If you’re not a good driver you won’t save much, but your pay-as-you-go premium will not be any more than the premium for a standard policy. Even if you don’t save money, you can’t lose money.

If you’re retired, telecommute, work from home, or otherwise drive only, say, 6,000 miles a year, you won’t have to pay rates based on driving 12,000 miles. A pay-as-you-go policy gives you more control over your insurance costs than the standard policy.

If you know that your insurance rates are based on your driving habits, you’ll have more incentive to be a better driver. And since the rates are based on mileage, you’ll also have incentive not to make wasteful trips to the grocery store within walking distance of your house.

You stand to save even more money if you are the parent of a teenage driver, especially if the device includes GPS information. If your teen has any risky driving habits, you can point them out and help them improve. The pay-as-you-go insurance device gives you the opportunity to improve your teen’s driving habits at a time when you’re not in the passenger seat, teaching them to respect the road and other motorists.

So far pay-as-you-go insurance makes up only a small part of the auto insurance market. However, industry experts estimate that in five years, about 20 percent of policies will have at least some user-based features. Always think twice about your routine and driving situation when evaluation car insurance policies. It’s easy to overlook paying for something you don’t need.

 

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

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