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Why should a driver with a five-minute commute pay the same as a driver with a two-hour commute? If you want great car insurance but don’t drive that many miles each year, compare pay-as-you-go car insurance, also known as pay-per-mile or usage-based policies. Another similar option is telematics car insurance, which tracks your driving habits and sets a rate based on your safety skills.
You can choose from a variety of pay-as-you-go car insurance policies. Each company’s program differs slightly, so you’ll want to look at how each one works before signing up.
These major companies set a base rate and then charge a few pennies per mile that you drive:
Company | Potential savings | How it works | Where it’s available |
---|---|---|---|
Allstate Milewise | Not specified | Allstate takes your premium out of your account each day, based on your miles. | Delaware, District of Columbia, Florida, Idaho, Illinois, Indiana, Maryland, New Jersey, Ohio, Oregon, Texas, Virginia, Washington, and West Virginia |
Metromile | $611, or up to 50% | Use a plug-in device or Ford Connect to track mileage. | Arizona, California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia, Washington |
Mile Auto | Up to 40% | Send in a photo of your odometer reading each month. | Georgia, Illinois and Oregon |
Nationwide SmartMiles | 10% for safe driving, more for low mileage | Use a plug-in device for tracking and view your usage online. | 33 states and the District of Columbia |
These major companies offer policies that set rates based on your driving skills, called telematics insurance:
Company | Potential savings | Time until discount | How it works |
---|---|---|---|
Allstate Drivewise | 40% or more in cashback | Every six months | Get cashback every six months and points for finishing safety challenges |
Liberty Mutual RightTrack | Up to 30% | 90 days | After the test drive, return the device to see your final discount. |
Nationwide SmartRide | Up to 40% | Four to six months | Get a final discount that’s applied at your next renewal. |
Progressive Snapshot | $145 a year, about 10% | One policy period, usually six months | Get your discount at your next renewal. |
Root | Up to $900 a year, about 70% | Two to six weeks | You’ll get scored on your driving, then get a discount at the end of the test period. |
State Farm Drive Safe & Save | Up to 30% | Ongoing | Get an updated discount at each policy renewal. |
The amount of money you can save depends on the program you choose and your driving score. A good score can land you a sizable discount, while a bad score might raise premiums. Typically, safe drivers can save whether they go for a standard discount or let an insurer track their mileage and driving habits.
Anyone who drives less than the average person may benefit from the pay-as-you-go or pay per mile system. Similarly, anyone who wants full coverage insurance but doesn’t drive enough to warrant paying full price might consider this option. Drivers who might benefit most:
Getting started with pay-as-you-go car insurance follows a simple process:
Once the data has settled or become consistent, your driver safety score locks in, and you can send the box back to the insurance company. As such, step six is important for reducing future costs.
Joel Ohman
CEO, CFP®, MBA, MDiv joelohman.com
One type of lesser known insurance discount is new to most people: allowing the insurance company to put some type of data recorder in your vehicle to monitor your driving habits. If you have safe driving habits or don’t drive all that often then the insurance company will reward you with lower rates.
Virtually every large carrier offers some form of potential telematics discount: GEICO, Allstate, Progressive, Esurance, Liberty Mutual, State Farm, and many others. Additionally, some specialty insurance carriers who offer “pay-by-the-mile” insurance like Metromile use telematics to calculate miles driven and determine rates.
So should you place a device in your car to record and analyze your driving? Privacy advocates are leery of yet one more device tracking us, but you may just determine that savings of 5% or more is well worth what is essentially a “set it and forget it” car insurance discount opportunity. Now just make sure to drive safely, but you already do that regardless, right?
Pay-as-you-go car insurance works by using an installed device, your smartphone or built-in service like OnStar to track your mileage. This type of policy charges you a base rate and then a rate per mile, and both rates are based on traditional car insurance factors like your age and driving record.
This type of policy is available through some traditional insurance companies and a few that specialize in it. It’s also known as pay-per-mile insurance, usage-based insurance or black box insurance.
However, some companies are using telematics programs to set a personalized low-mileage discount, so these terms won’t describe each company perfectly.
Another similar type of policy is called telematics insurance. This policy uses a device or your smartphone to track your driving habits and set rates accordingly. Behaviors tracked include your braking, acceleration, cornering or the times of day you drive. Then, your insurance company sets your premiums based on how safe you drive.
Nearly all major insurance companies offer a telematics feature so that you can get personalized discounts for driving safely. Telematics is also known as a low-mileage discount or black box insurance.
All three tracking methods work in a similar way, such as:
Rather than looking at one specific journey, the telematics device looks at many trips combined to discover your driving risk. Not every company uses all the tracked data to determine your rate. Some areas the black box tracks:
A good driver safety score from telematics information will lower your premiums, while a bad score may increase them. However, many drivers save money using this policy because it:
The app or device may automatically transmit data back to the insurance company or may require you to take it out and hand it to your insurer to download the data. The insurance company reviews this data and uses it to adjust your premiums.
Your insurance company then uses the black box information to assign you a driver safety score, which shows the kinds of risks you pose to the company. The insurer may give you a score for every trip or assign an adjustable overall score.
This wealth of information is a gold mine for car insurance brands, as it lets them calculate risk much more accurately. Telematics car insurance lets safer drivers pay lower premiums to match their personal driving habits.
In addition to tracking your driving, the black box also records some other important information, including:
Some privacy advocates express concerns over the data collected from telematics devices. How do companies use this personal information? If you share these concerns, you can make sure your insurance company offers full disclosure about what happens to the data collected. You’ll find that most insurance companies use measures to safeguard your personal information, rather than selling it.
Another privacy concern is the GPS tracking feature on the device. For some, this sensitive information offers more private information than drivers are comfortable giving. However, some devices let you turn off the GPS feature.
When deciding if usage-based insurance is the route for you, keep in mind that these tracking programs aren’t mandatory. You can opt in and out at any point.
The same exclusions apply to black box car insurance that apply to standard car insurance policies. The insurance company may not pay out for:
In addition, insurance companies may refuse to pay out if you showed dishonesty in your dealings with them. Black boxes make some cases of dishonesty easier to spot with clear proof.
Enjoy car insurance premiums customized for your driving with pay-as-you-go car insurance. If you don’t mind transmitting your driving data to your insurance company from a black box, app or built-in device, you could save a bundle on your car insurance.
If you’re not sure whether pay-as-you-go insurance is worth it, compare other car insurance options to find the best policy for you.
Compare car insurance companies near you.
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I just need a comprehensive insurance for 2 months starting 9/8/17 for driving 3000km coverage only
Hi there!
For short-term low mileage drivers, I’d definitely recommend taking a look at Metromile. They offer comprehensive coverage and you’ll only pay per mile driven.
Thanks for asking a question on Finder!