If you do not drive frequently, why should you pay high premiums for your car insurance? Believe it or not, car insurance companies agree with you. To prove it, they offer insurance that is based on the lower risk you pose by motoring less and exhibiting good driving habits.
This type of insurance goes by several different names – pay-as-you-drive insurance and usage-based insurance are two of the most common – but by any name, the principle is the same. You receive discounts based on the miles you drive in a given period of time. Certain policies may include other risk aspects of your driving habits.
Generally, these plans require installing a device on your car that reports the mileage you drive, and other information relevant to your policy – such as the time of day you are driving and your speed.
Anyone is eligible for these programs, but they logically appeal to three broad groups:
- Urban Residents – If you have mass transit available as an option and tend to use your car for limited purposes, you may find this appealing (although you may also consider whether you really need to own a car at all). Those with short, regular commutes or home offices may also find pay-as-you-drive appealing, unless they put on significant miles for non-work related travel.
- Parents with Teen Drivers – The mileage-limiting and potential tracking aspects of some devices and policies may appeal to parents who want to keep track of their teens during their first years of driving.
- Elderly Drivers – These programs are useful to older drivers who have limited capacity or desire to drive often, but need to maintain a car for special purposes or emergencies.
Note that both teen drivers and elderly drivers are considered high-risk by nature and tend to have higher baseline insurance rates; thus, a discount program like this is especially useful.
Discounts will vary depending on the program and the amount you drive, but it may be possible to find discounts of up to 50% by shopping around.
As with any insurance policy, there are pros and cons. Some of the pros are:
- Lower Costs – The primary motivator for this kind of program.
- Tracking Capability – Put this in the pro category if you have a teen or need to track mileage for business purposes; put it in the con category if you are concerned about the use of your data or general privacy issues.
- Motivation – Having such a policy in place gives you major incentive to limit your driving.
Next, the cons:
- Extra Charges – Depending on the type of policy you have, there may be penalties for going over the mileage. It may be revoking of the discount or a mileage overage charge similar to going over the minutes in a cell-phone data plan. The devices that are installed in your car may also have up-front charges associated with them.
- Lack of Privacy – See Tracking Capability above.
- State Restrictions – Insurance is state-regulated. Certain pay-as-you-drive policies may not be available in your state if the insurance carrier does not like the terms of your state, or they may contain added restraints or exclusions.
The information gathered by the devices may also be useful in case of an accident – whether that works for you or against you.
Essentially, if you drive for limited amounts and in low-risk situations, it is worth your time at least to check out your options for pay-as-you-drive insurance. It may be worth putting up with a bit of Big Brother to save significant money – but only you can make that call.