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What is pay-as-you-go car insurance?

Important facts to know...
  • Allowing the insurance company to monitor your driving can result in lower rates
  • Some companies may impose higher fees if you engage in aggressive driving habits
  • You can compare plans between different companies

If you’ve been looking for ways to save on the monthly bills, then you may have decided that it’s time to lower your insurance premiums. One option is to simply shop around and see if another company will reward you with better rates.

However, you may be able to get a plan that only charges you based on your actual time on the road.

Pay-as-you-drive plans are emerging across the market, and they may provide you with the savings that you’ve been looking for. Before you decide to move forward, here’s what you should know about these unique insurance policies.

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Proof is Required

Most insurance companies base their rates on an average of 12,000 miles per year. In the past, insurers had to simply take their customers’ words regarding estimated mileage, so the discounts weren’t always significant.

With modern devices that track the exact miles driven, companies no longer have to depend on the honor system. Consumers who prove that they’re driving only 6,000 miles a year may qualify for savings of 10 to 15 percent.

The tracking device doesn’t just look for miles driven. It also records your driving habits so that the insurance company can better assess risk. The system records:

  • Miles driven
  • Time of day
  • Location
  • Hard accelerating and braking
  • Tight cornering
  • Speed
  • Airbag deployment

If you’re hoping to lower your rates with telematics technology, then you’ll want to be completely honest with your insurance company about where the car is taken and how long it’s on the road.

You’ll also want to watch your driving habits to ensure that you’re viewed as a safe and cautious driver who’s not likely to cause accidents.

People who enjoy pushing the envelope with speed limits and tend to drive aggressively may not be good candidates for these programs. Despite never receiving tickets, the insurance company will still assess higher rates based on these habits.

However, you can still shop around with different companies to find more attractive rates on a traditional plan.

By Any Other Name…

Pay as you go insurance actually has several names, but they all work off the same technology. If you’re trying to negotiate lower rates with your provider, you may want to ask them if they offer this type of program. It’s also referred to as:

  • Pay as you drive (PAYD)
  • Pay how you drive (PHYD)
  • Time-based insurance (TMI)
  • Insurance telematics
  • Mileage-based insurance

Clear Benefits for the Company

Use-based plans are growing in popularity among providers because they offer clear benefits to the carrier. Companies are willing to cover the high cost of technology, logistics, and support in order to:

  • Offer cost-saving programs that are appealing to low-risk drivers
  • Improve consumer loyalty
  • Lower the overall amount of claims
  • Provide personalized services that better suit their customers’ needs

With multiple companies now seeing the benefits of these plans, you can shop around for the program that best suits your needs. With your clean driving record and good habits, you can take advantage of highly attractive rates to save money.

Making the Right Choice

There are clear benefits for both the insurer and the insured, but that doesn’t mean that usage-based plans are right for everyone.

While insurance companies focus on the positive benefits to be reaped by great drivers, they tend to downplay the darker side of in-car monitoring devices.

Companies are now open admitting that the telematics systems will be used to assess overall driving habits, and they will impose surcharges on people who engage in risky behaviors. This includes:

  • Going over 80 miles per hour
  • Decreases in speed in excess of seven miles per hour per second
  • Hard accelerations in excess of nine mph per second
  • Driving between the hours of midnight and 5:00 am

It’s important to note that many companies report that they won’t impose surcharges on people who engage in risky behaviors. However, you may still want to hold off on making the switch if you tend to be heavy on the gas and brake.

A better option may be to compare rates between traditional plans to save.

Shopping for the Right Plan

With so many insurers now offering this option, you have plenty of choices to consider. Your first concern may be what your insurer will do with the information they collect. Ideally, it should only be for internal use.

You can also ask questions regarding the information that is reaped. California has laws banning insurance companies from monitoring where you drive, and they also cannot look at hard braking as there’s no way of determining why you had to rapidly decelerate.

You’re signing up for discounts, so request specific information regarding your potential savings.

You’ll be more satisfied with the plan over the long-term if you know what to expect.

Bundles are an option with these plans. In addition to getting the tracker, you also may be able to sign up for safety or maintenance systems to keep your car in top condition and stay safe on the road.

Finally, use the available portal to check your own driving habits and see how you’re doing.

You can save on your insurance premiums by providing the agency with more information about your driving habits. Rather than trusting you to be forthcoming and accurate, the company can use real-time information to provide you with handsome discounts.

There are some differences between plans, so it still pays to shop around.

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