Who offers the best “Pay as you Go” car insurance?

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific car insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life...

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UPDATED: Mar 13, 2020

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Pay-as-you-go auto insurance is a fairly new phenomenon, but it’s gaining in popularity as environmentally-conscious and budget-savvy drivers search for new ways to lower the cost of their insurance. Essentially, this type of coverage offers rates based on a driver’s individual habits.

People who drive frequently, drive during peak traffic hours or engage in high-risk behaviors have a higher risk of being in accidents than individuals who do not. In order to reward drivers who reduce their risk by driving infrequently, insurance companies offer coverage that charges rates based on a driver’s actual behavior.

Many insurers are now offering these programs, and they can be a good choice for some consumers. If you drive infrequently, it might be worth considering a usage-based insurance policy. Different companies handle the policies differently, however, so it’s worth investigating individual insurers before choosing the best company for your policy.

How does Pay-as-you-Go car insurance work?

Auto insurance companies assume certain basic behaviors. They assume that drivers will put an average of 10,000 miles on their cars each year, and that most drivers commute to work during peak traffic hours. These behaviors put drivers at a high risk of being involved in collisions because there are so many other people on the road at those times. Individuals who drive less have a lower risk of being in accidents than those who drive a lot.

Usage-based car insurance monitors a driver’s habits and modifies costs accordingly. This means that a driver’s rates will change from one month to the next as their driving habits change. It also means that the insurance company needs to monitor an insured’s driving habits.

In order to do this, the insurance company will install a device into the insured’s vehicle. This device monitors the miles driven as well as what time of day they were driven and whether the insured made certain specific behaviors, like taking turns quickly or braking suddenly. The device then reports this data back to the insurance company, which determines the rates for the month.

Of course, the device cannot get an accurate idea of a driver’s entire driving habits by focusing on such limited behaviors, but it can get a better idea of the person’s risk. The people who benefit from these programs are those who drive primarily for pleasure and who avoid commuting during rush hour. People with low mileage and off-peak driving hours can often get a dramatically lower premium for using a pay-as-you-go program. There are numerous insurance companies that provide usage-based policies, but each offers different benefits:

— Progressive Car Insurance

One of the first insurance companies to introduce usage-based insurance, Progressive calls the program a “Snapshot Program.” The telematics device works with any vehicle manufactured after 1996. The maximum discount available to drivers is 25%.

— Liberty Mutual

The usage-based program, “Onboard Advisor,” is primarily targeted at commercial lines. It’s used primarily to monitor the behavior of fleet drivers and maximize profits in those policies. Private auto versions may come available, however, so it’s worth asking about if you already have a Liberty mutual policy.

— GMAC Insurance

Instead of using a separate telematics plug-in, GMAC utilizes OnStar technology to record a driver’s behaviors. The program only records mileage, not other behaviors, but discounts can be as high as 26% for qualifying members.

— Allstate

The “Drivewise” program is Allstate’s answer to usage-based insurance, and it functions in a very similar way to Progressive’s policy. It utilizes a similar device and records the same information. Drivers can save up to 30% by enrolling in Drivewise.

— State Farm

Called “Drive Safe and Save,” State Farm’s usage-based insurance discount functions similarly to Allstate and Progressive, and some customers an save as much as 50% on their car insurance.

Not all pay-as-you-go insurance policies are available in all states. Some insurers have only made the product available in certain areas as a test pilot, so you should always check with the insurer to make sure you can qualify.

Should I Get a Usage-Based Policy?

Of course, in order to get the maximum discount from any insurance company, a customer must meet the mileage and behavior requirements. In some cases, a person’s rates could actually go up once the device was installed, although this is not the norm. It’s important to ask the insurance company how rates are calculated and whether you would be a good candidate for a pay-as-you-go insurance policy.

Other insurance companies that do not offer a driving-monitoring system may still offer you a discount if you have low mileage. If you utilize public transportation, work from home or simply don’t drive very much, you can explain this to your insurance company and provide odometer readings. You may be able to get a one-time discount that can lower the cost of your insurance without needing to submit to a behavior-monitoring program.

As usage-based insurance grows in popularity, more insurance companies will begin offering it. Time will tell whether the deep discounts will continue for drivers. In the meanwhile, comparison shopping and carefully selecting the best insurer for your needs is the best way to ensure you get the best possible rates for the policy that you need.

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