Pay-as-you-go car insurance

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 much, compare pay-as-you-go car insurance.

Which top brands offer pay-as-you-go car insurance?

You can choose from a variety of pay-as-you-go, pay per mile or safe driver programs. Each company’s program differs slightly, so you’ll want to look at how each one works before signing up. Major companies with pay as you go:

How much can I save with pay-as-you-go car insurance?

The amount of money you can save with telematics depends on your driving score. A good score can land you a sizable discount, while a bad score might raise premiums. For example, drivers who switch to Metromile save an average of $661 on their annual rates.

However, you may see higher rates than average because of your age or past claims. The black box score doesn’t replace these factors. It simply focuses on your driving and not on the factors you can’t control. You also might see an extra fee for renting the pay-as-you-go tracking device.

Is pay-as-you-go car insurance right for me?

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:

• Seniors. After you’ve retired, you could drive much less than before and may not need full coverage.
• Students. Pay-as-you-go options work well if you’re a student who leaves your car at home while away at school or who mostly stays on campus.
• 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.
• High risk drivers. Insurance companies charge higher rates for risky drivers, including drivers under 25 and drivers without perfect credit. But usage-based insurance rates depend on your actual driving, not your demographics.
• Seasonal workers. Seasonal workers like teachers who don’t drive as much during the summer could use pay-as-you-go insurance during the off-season.
• Remote workers. With a 10-foot commute to your home office, you likely don’t drive much except to run errands.

Sign up for pay-as-you-go insurance in 6 steps

Getting started with pay-as-you-go car insurance follows a simple process:

1. Review the terms.
2. Sign up with the app or policy.
3. Receive your black box telematics device from the company in the mail.
4. Install it by following the instructions provided.
5. Drive as normal.
6. Review your driver scorecard to improve your driving and reduce your premiums.

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.

How does pay-as-you-go car insurance work?

Pay-as-you-go car insurance works by using an installed device, your smartphone or built-in service like OnStar to track your mileage and driving. 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.

The pay-as-you-go feature is available from nearly all major insurance companies, and a few companies specialize in this coverage. It’s also known as a low-mileage discount, usage-based insurance, black box insurance or telematics insurance.

Many traditional car insurance companies offer telematics through a safe driver program that you sign up for. You’ll also see pay per mile insurance policies, which charge you a base fee and then a fee per mile that you drive. This policy typically doesn’t track your driving skills, only your mileage.

How is my driving tracked?

All three tracking methods work in a similar way, such as:

• Plug-in device. You install a telematics device in your car called a black box. You may need to remove it every so often, so your insurance company can analyze the behavior tracked.
• Built-in device. Built-in devices like OnStar or SYNC can show your mileage and driving behavior to your insurance company automatically.
• Smartphone app. Instead of using a separate telematics device, you download your company’s app to collect driving data on your phone.

How does a telematics device rate my driving?

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:

How can pay-as-you-go car insurance help me save?

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:

Pros and cons of pay-as-you-go car insurance

What does the insurance company do with telematics data?

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.

What else does the black box do?

In addition to tracking your driving, the black box also records some other important information, including:

• Location. Your insurer may confirm that you store your car overnight in a parking garage or locked location. This personalizes your premium further and confirms the information you have provided.
• Distance driven per year. Mileage makes a difference to your car’s lifespan and the chances of making a claim, but it can be difficult to prove. A black box lets your insurance company understand how far you drive each year and how it compares to other people. It can then adjust your premiums accordingly.
• GPS data. The black box also includes a GPS, which can help police recover the vehicle if it’s stolen or provide further information about your driving.

Is it safe to trust a telematics device with my data?

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.

Black box insurance exclusions

The same exclusions apply to black box car insurance that apply to standard car insurance policies. The insurance company may not pay out for:

• Damage caused from illegal activities
• Damage that occurred while the driver was under the influence of alcohol or drugs
• Damage caused by someone else driving your car who isn’t listed on the policy, in some cases
• Damage related to acts of war or biological, radioactive or chemical contamination
• Damage from track or road racing
• Loss because of an unattended and unlocked car in a public place
• Loss of value from depreciation or wear and tear
• Repairs from an unauthorized mechanic or damage from shoddy repairs unless authorized by the insurer
• Damage caused by pets or other domestic animals under your care or responsibility

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.

Bottom line

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.

Common questions about pay-as-you-go insurance

• 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. Drivers receive 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.

• What's considered low mileage?

  The average driver puts 10,000 miles a year on their car. If you drive less than that, you might qualify as a low-mileage driver.

• 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. Older cars might not have this port, so you might wait until your next car upgrade to switch.

• Will usage-based driving really improve my driving?

  A study by the Insurance Information Institute found crash rates dropped 20% to 33% for drivers using telematics devices. Because you get feedback about your driving instantly or at the end of your drive, you’re encouraged to drive better. Your insurance rates will lower as a result.

  You can also see your strengths and weaknesses as a driver since most black box devices rate your driving based on multiple factors.

• Can I cancel pay as you go insurance anytime?

  Yes, you can cancel pay as you go or pay per mile policies anytime, although cancellation policies will vary by the insurance company. You can check for any cancellation fees before ending your policy to avoid surprises.