Save money on car insurance by only paying for the amount that you drive.
It doesn’t make sense that someone who occasionally drives around town pays as much for car insurance as someone who has a two hour commute to work. The pay-as-you-go feature is available from a handful of insurers, and is also known as low mileage discount, usage-based insurance, black box insurance or telematics insurance.
If you want the advantages of comprehensive car insurance while on the road, but you don’t drive enough to make it worth paying full price, consider switching to an insurer with options for paying based on how much you drive.
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How does pay-as-you-go car insurance work?
With usage-based insurance, the cost of your insurance will be based on the amount you drive and how you drive. If you only do a little bit of driving, your premiums are reduced to reflect this. It works by installing a device, or using a built-in telematics service such as OnStar or SYNC, that tracks the miles you drive and your driving behavior, like hard braking and rapid acceleration. A few providers are offering a smartphone app that tracks your driving. All three methods act similarly.
- Plug-in device. This requires the installation of a telematics device, sometimes called a “black box,” on your car that is removed and analyzed by your insurance company. Not only does it track your mileage, it can track your speed, braking patterns and when and where you drive. This can seem invasive to some drivers.
- Built-in device. Mileage and driving behavior is reported automatically with a built-in telematics service, like OnStar or SYNC. If you have OnStar or a similar service, you can qualify for the mileage discount if you drive less than 15,000 miles per year.
- Smartphone app. Instead of using a device, you’ll download your provider’s app, which collects driving data.
What is the black box, or telematics device?
The telematics device, sometimes referred to as a black box, records your driving habits and how you drive. Rather than looking at any one specific journey, the black box looks at the combined effect of many trips to work out what kind of driver you are on the whole.
Some of the factors the black box tracks include:
- Where you drive
- How often you drive
- Time spent on the road
Where does the telematics device go in my car?
The black box plugs into your car’s diagnostic port, usually located near the steering column, and automatically records data.
How do insurance companies get the data from the device?
The app or device automatically transmits data back to the insurance company. The insurance company reviews this data and uses it to adjust your premiums.
What does the insurance company do with this data?
The information gathered by the black box will be used to assign you a driver safety score, which indicates how safe you are, how competently you drive and what kind of risks you may pose to the insurance company. This driving score will usually replace any no-claims and safe driver bonuses or penalties from the insurer. The insurer can choose to 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 levels much more accurately. It can let safer drivers pay lower premiums to match their personal driving habits. Telematics car insurance is all about getting a personal driving record for insurers to set your premiums by, rather than being lumped into a group price because of your age, gender, location or other factors.
Where is black box insurance available?
You can get pay-as-you-go insurance in every state, but it depends on the provider.
For example, HiRoad Assurance Company now offers an app to Rhode Island drivers that gives drivers a discounted insurance rate based on how safely they drive. Drivers are given a safe driving rating based on their speed, braking and other factors on the road, and they’re given discounts based on that safety rating. The app displays your score and projected discounts for each trip so you can change your driving behavior based on real-time data.
How can pay-as-you-go car insurance save you money?
A good DriveScore, or driver safety score, based on telematics information recorded by the black box, will lower your premiums, while a bad score may increase them.
- Replaces no-claims discounts. Black box car insurance replaces the no-claims bonuses offered by most insurers. It can take up to six years to get the top level of no claims bonus, but if you are a good driver, black box insurance can help you achieve the equivalent within a single year.
- Reduces risk category. If you are in a high risk category, such as a new driver or under 25 driver, then the black box can prove that you are not actually a high risk provided you consistently drive well. You will still be charged higher age or experience-related premiums, and additional penalties, but these will be partially offset by a good black box driver score.
- Claims penalize your premiums less. Because your no claims bonus has been replaced by your driver safety score, you are able to make claims without worrying about a large premium hike. Your premiums will still increase upon making claims, but your driver safety score will remain largely unaffected.
- Makes you a safer driver. Analysis has shown that compared to standard insurance, young black box drivers are 20% less likely to be involved in a car crash and that their accidents are less severe, costing an average of 30% less. This is thought to be partly because naturally safe drivers are more likely to opt for black box insurance, but also partly because black boxes help people drive more safely. And if you’re driving in a way that will increase your premiums, you’ll be notified so you can change your habits.
- Provider-independent driver score. If you want to change insurers, some of them may recognise a good DriveScore and offer reduced premiums or higher no claims bonuses.
- Works for multiple drivers. The black box is for everyone who drives that car. If there are multiple drivers on the policy, and all of them are in high-risk categories then this would typically result in a significant price increase. However, if they are all safe drivers as evidenced by black box data, then you may be able to get significantly lower premiums than you would otherwise.
- View your own driving stats. You can access the telematic data and take action yourself. For example, you can check what kind of driver someone else on your policy is. If they tend to be unsafe it’s possible that they’re single-handedly hiking up your premiums and you could save money by cutting them from the policy and not letting them drive the car.
The amount of money you can save with a black box device depends entirely on your driving score. A good score can get you a sizable discount while a bad score might raise premiums.
However, regardless of your score, you are still susceptible to the usual penalties such as for being under the age of 25, or having made claims in the past. The black box score does not replace these, it simply provides a new way to save money in order to partially offset them. There might be an additional fee for renting the device itself.
Who can benefit from the pay-as-you-go option?
Anyone who drives less than the average person can potentially benefit from the pay-as-you-go system. Similarly, anyone who wants full coverage insurance but doesn’t drive enough to warrant paying full price for it may also want to consider this. Some people in particular are more likely to find themselves in these situations.
- Seniors: After you’ve retired, it’s likely that you will drive much less, and no longer need to pay for full coverage.
- Students: Pay-as-you-go options are perfect if you’re a student and leave your car at home while you’re away at school or stay on campus most of the time.
- City dwellers: If you live in a metropolitan city like New York or San Francisco, you may own a car but leave it parked much of the time. You still need comprehensive insurance in case of theft, vandalism or natural disasters. Pay-as-you-go is a great option.
What else does the black box do?
In addition to tracking how smoothly you drive, the black box also records some other important information. This includes:
- Location. Your insurer may use the black box data to confirm that your car is kept overnight where you say it is. This helps personalize your premiums further and confirm that the information you have provided is accurate.
- Distance driven per year. This makes a big difference to the lifespan of a car and the chances of needing to make a claim, but can be difficult to prove. The use of a black box lets your insurer understand how far you drive in a year and whether this is more or less than most other people, and adjust your premiums accordingly.
- GPS data. The black box also includes a GPS tracker which can be used to help police recover the vehicle if it’s stolen, and provide further information about driving habits.
What about privacy concerns?
Some privacy advocates have expressed concerns over the data that is collected from these telematics devices. You may be able to obtain less costly car insurance, but at what cost? What is being done with this personal information? And is it being shared with anyone? If you share these concerns, you’ll want to make sure your insurance provider offers full disclosure of what happens to the data that is collected.
Fortunately, you’ll find that most, if not all, of the insurance companies that offer usage-based insurance do not sell your info to third parties and are fully transparent with what they do with that data. Another factor that might help to put your mind at ease is that none of these tracking programs is mandatory. The insurance provider allows you to opt-in and opt-out at any point.
Another privacy concern is the GPS tracking feature on the device. For some, this is too invasive. There is concern for what is called “location discrimination.” If you park your car and/or travel in a part of town that is considered dangerous and has a high crime rate, this might cause your insurance premium to increase. However, some devices allow drivers to turn of the GPS feature. If this is a worry for you, check to see if disabling the GPS is an option.
When deciding if usage-based insurance is the route you want to take, you’ll want to weigh any privacy concerns with the discount you might receive. Consider your driving habits and personal situation to determine if this type of insurance could help you save money.
Which providers offer pay-as-you-go insurance?
- Metromile. Metromile is the only fully pay-per-mile car insurance provider. It is designed for low-mileage drivers.
- Progressive. Snapshot is Progressive’s usage-based program. Plug this device into your car and Progressive will start tracking your driving habits in order to determine if you qualify for any discounts.
- Allstate. Drivewise, Allstate’s plug-in telematics device, allows drivers to get rewarded for safe driving.
- Liberty Mutual. Unlike Allstate and Progressive, Liberty Mutual’s telematics device is not plug-in. It is a tag that is placed on your windshield, usually behind the rearview mirror. Drivers can save between 5 and 30 percent for good driving habits.
- Naitonwide. Nationwide’s SmartRide rewards users for safe driving. This plug-in device monitors your driving, and the safer you drive, the greater the discount.
- Esurance. DriveSense is Esurance’s usage-based program. Instead of utilizing a device, you’ll download an app to your smartphone that records driving data.
- Safeco. With Safeco’s RightTrack program, you’ll install the plug-in device for 90 days and then return it to learn if your driving has earned you a discount.
- Travelers. Like Esurance, Travelers’ usage-based program, IntelliDrive, uses a smartphone app to collect driving data and possibly offer discounts based on your driving habits.
- The Hartford. The Harrford offers a usage-based option in a handful of states with its TrueLane program.
- National General. Similar to other usage-based programs, National General offers a low-mileage discount to OnStar subscribers who drive less than 15,000 miles per year.
- State Farm. State Farm’s Drive Safe & Save program also uses data from your OnStar service to determine if your driving habits qualify you for a discount. Drive Safe & Save is also available as an app on eligible smartphones.
Black box insurance exclusions
The same exclusions apply to black box car insurance as apply to most typical car insurance policies. The insurer will generally not pay out for:
- Damage incurred in the course of or resulting from illegal activities
- Damage that occurred while the driver was under the influence of alcohol or drugs other than those taken as prescribed
- Damage sustained when the vehicle was driven by someone not listed as a driver on the policy
- Damage that is in any way related to acts of war, or biological, radioactive or chemical contamination
- Damage incurred while the vehicle was being used in a race or trial, or on a racetrack
- Loss resulting from the car being left unattended and unlocked in a public place
- Loss of value resulting from depreciation or wear and tear
- Repairs conducted by an unauthorised mechanic, or damage resulting from shoddy repairs unless they were done by someone authorised by the insurer
- Damage caused by pets or other domestic animals owned by you or which you are legally responsible for
In addition to these, insurers will also typically refuse to pay out if there is evidence of you knowingly being dishonest in your dealings with them. Black boxes make this a lot easier to spot, and insurers will often have clear proof of this if it occurs.
How do I set up pay-as-you-go insurance?
- Review the terms and confirm that it’s suitable for you
- Sign up
- Receive your black box telematics device from the company in the mail
- Install it under your car’s dashboard by following the instructions provided
- Drive as normal
- Regularly review your driver safety scorecard to look for ways to drive more safely and reduce your premiums
- Once the data has settled or become consistent over time, your driver safety score is locked in, which determines your future premiums, and you can send the box back to the insurer.
Once your driving stops improving or becomes consistent, your premiums will be locked in. As such, step six is very important for reducing future costs.
The black box will draw a small amount of power while the car is running, but enters sleep mode when it is turned off. It will not interfere with any onboard electronics, other systems or the vehicle’s functioning in any way.
Pros and cons of pay-as-you-go car insurance
- Lets you get car insurance at a lower price
- Means you only pay for the amount you drive
- Can be used to quickly achieve the equivalent of a high no-claims discount
- Will actively result in lower premiums for good drivers
- GPS functionality assists recovery if your vehicle is stolen
- Helps you become a safer driver
- Provides thorough information and evidence in the event of a dispute
- Only ideal for people who drive less or better than average
- Requires more policy management than most typical policies
- It is currently only available with comprehensive car insurance policies
- You will be required to pay an additional one-time fee in order to rent the black box
- You will need to actively review your driving behavior to get the best value rather than simply installing and then forgetting about it
- You may have concerns regarding data collection and privacy issues
Enjoy individual 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 insurer from a black box device, app or built-in telematics, you could save a bundle on your car insurance.
If you’re not sure whether pay-as-you-go insurance is worth it, compare your other car insurance options to find the best policy for you.