Finding the right car insurance coverage can be exhausting, overwhelming, and downright frustrating. The market seems to grow every year, with companies offering new ways to bundle coverage and reduce premiums.
Saving money is great, but it can be difficult to find the right coverage at the right price while navigating the endless options. Is full coverage necessary for all drivers? What about people who drive significantly fewer miles than average?
Let’s face it, commuting to a workplace is becoming less and less common nowadays. More people are preferring virtual jobs and more businesses are opting for virtual offices, resulting in less time in the car. The transition to a more virtual world brings with it advantages while also highlighting some less than practical functions in life.
Buying a standard auto insurance policy doesn’t always suit the needs and lifestyle of modern individuals. There needs to be a way to pay for only the coverage you use, not the extra you-should-probably-have-this-because-you-drive-everyday coverage.
Pay-as-you-drive insurance is the solution. This type of coverage allows a driver to pay for auto insurance when they need it – for the miles or amount of time they are actually on the road. But can it really be that simple?
What is usage-based car insurance?
Pay-as-you-drive insurance options are a growing trend in the insurance world. These coverages offer the same peace of mind and simplicity as the auto-pay bill option many banks offer. Drivers sign up for the usage-based insurance coverage and pay for the car insurance they use. It sounds simple enough, right? Let’s look deeper.
Pay-Per-Mile
Pay-per-mile, as known as pay-as-you-go or pay-as-you-drive, is a coverage option based on how much a driver actually drives. The more miles driven in a year, the more a driver pays for their insurance coverage.
Pay-How-You-Drive
Another usage-based option factors in how safely a person drives. This type of coverage requires constant monitoring and analyzes everything from when you drive to how quickly and sharply you turn. The riskier your driving maneuvers, the more expensive your coverage.
Manage-How-You-Drive
This type of coverage is much newer than other usage-based options. Manage-how-you-drive is similar to pay-how-you-drive but with more real-time feedback and cost analysis.
How are drivers monitored?
Usage-based insurance requires high levels of monitoring. Insurance companies need to know when and how you drive so they can provide discounted rates. Drivers who choose usage-based insurance are usually offered two different options for monitoring.
Depending on the provider, drivers are provided with a tracking device. This device is small and unobtrusive. It simply clicks into the underside of your dashboard and collects data about your driving habits.
Other providers outfit their customers with a phone app. The app is activated when inside the car and collects similar data on driving habits.
What are the benefits of usage-based car insurance?
Some benefits of usage-based insurance may seem obvious, but there are some that are worth exploring more closely.
Financial
The biggest benefit to this type of car insurance is cost. Drivers can see big discounts in their premiums and rates based on how well and how often they drive.
The biggest savings are seen by those who drive better than statistics suggest, such as young or new drivers. Drivers between 16 and 25 are considered some of the most costly to insure. If a young driver uses usage-based car insurance and drives safely, they could see big savings.
Societal
One benefit that is often overlooked is society at large. The more people turn to usage-based insurance, the safer the activity of driving becomes.
Usage-based insurance encourages drivers to practice safer, more aware driving habits. This means all road users — drivers and passengers — are at lower risk of accident or injury. Those who are more aggressive or higher-risk drivers will be discouraged from these habits when they see an increase in their premiums.
Security
This type of insurance coverage also offers security benefits. Cars that are equipped with a tracking device for insurance purposes can be more easily recovered in the event of a theft. Drivers can breathe easier knowing they have an extra layer of support and security.
What are some drawbacks to usage-based car insurance?
This car insurance coverage does present some concerns or drawbacks. These drawbacks should be understood and weighed alongside the advantages to determine if usage-based car insurance is the right option for each driver.
Information Security
There have been concerns or worries about personal information and data breaches. Because usage-based insurance relies on technology and the collection of personal information, people have voiced concerns about its safety.
News of large tech companies falling victim to online hackers has people worried about the vulnerability of their personal information. A breach or loss of data is possible with usage-based coverage.
Limitations
Depending on the provider, usage-based insurance can have some serious limitations. Some providers limit when a driver can be on the road, blocking out certain times of day as riskier. Other providers limit this coverage by placing age restrictions.
This type of insurance coverage can also be limited when circumstances change. If a driver finds a different job with a longer commute, usage-based coverage may no longer make any financial sense. Usage-based insurance can be limiting just by its own nature.
Usage-based insurance is a new trend. It’s growing in popularity and shaking up the car insurance industry. Similar to when buying car insurance online became the norm, usage-based insurance may soon be the new norm.
Laura Gunn writes and researches for the auto insurance comparison site, BuyAutoInsurance.com. She and her husband work out of the home, so they understand the need for flexible, personalized auto insurance options.
