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Pay as you go car insurance is one of the newest options to be introduced in the auto insurance industry. It is an option that many might consider, though there are a few points of concern that you should know about before looking for pay as you go coverage.
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Pay as you go car insurance is believed by many to possible revolutionize the way that a driver’s risk is calculated by insurance companies. This, in turn, can have a big impact on car insurance premiums.
Pay as You Go Defined
Pay as you go insurance coverage bases the cost of your premium on factors such as miles driven and how safely the vehicle is driven, rather than just on predictors such as driving history and credit history.
Those drivers who travel fewer miles every day or who drive in a safe manner pay lower rates with a pay as you go program.
All of the driver’s information is recorded by a small device using telematics technology, which is similar to the technology that drives OnStar and GPS devices. A small device is usually plugged into a vehicle’s computer, and it records information such as mileage and location.
The information is sent back to the insurance company. If the information shows that the driver is only driving few miles and in a safe manner, then the driver is rewarded with lower rates.
Every current pay as you go program is different, based on the insurance companies that offer them. Most of the largest insurance providers in the U.S. have some sort of telematics-based program that allows drivers to have their rates based on how they actually drive, rather than past events or behaviors.
Every insurer looks at different factors, but all factors monitor risk. First, pay as you go devices monitor mileage, as those drivers who have more miles on the road increase their chances of an accident for every mile they drive. Some pay as you go programs look solely at mileage in terms of adjusting coverage in addition to a base rate.
Another factor is driving safety. The device may record speed, braking, and a vehicle’s handling of turns. Obviously, high speeds in general and taking turns at risky speeds increase the likelihood for an accident and will increase rates. Similarly, hard braking indicates that you are following other vehicles too closely; this is also unsafe, and will result in higher rates.
Telematics devices may also factor in the times of day that a driver operates a vehicle. More accidents happen after the sun goes down, so those who drive only during the day will see more savings. In that same vein, some telematics devices also record the location of where a car is driven; side road driving that avoids high-accident areas will also increase savings.
Some pay as you go programs are geared especially for young drivers. It gives those with the highest risk the chance to prove they are safe drivers. The devices can also be used by parents to monitor their teen’s driving behaviors.
If You Drive Few Miles
The major focus of most pay as you go insurance programs is to offer reduced rates to those drivers who only travel a few miles at a time. If you drive relatively few miles a day or a week, then you should consider a pay as you go program, according to the specialists at the Insurance Information Institute. Those drivers who have long commutes or drive a lot for whatever reason won’t have as many options for a pay as you go program.
Each insurance provider that offers a pay as you go insurance program will have different requirements for mileage. Some programs record mileage through the telematics device and others allow the driver to voluntarily record their mileage.
One pay as you go program that was announced by LA station KABC-TV in California for 2011 would benefit those who drive less than 19,000 miles a year.
That mileage is the equivalent of just under 400 miles a week or 52 miles a day, which is much more generous than other programs.
The Oregon Department of Consumer & Business Services outlines those programs offered in the state. Drivers are restricted to mileage that is under 15,000 or even 10,000 miles a year. Other programs offer percentages of savings on a sliding scale, where the percentage of the discount increase as mileage falls.
If You Are a Safe Driver
Another factor you should consider if you think pay as you go is a good choice for you is whether you are a safe driver or not. Most pay as you go programs record data that shows driving statistics such as speeding and braking. If your data is going to show that you are unsafe, then you won’t find any savings.
For instance, if you have a habit of speeding, even five miles over the speed limit, then the data from the telematics device will reveal you a higher risk, and you won’t get a discount.
Similarly, if you tailgate, or follow other vehicles too closely or take too long to apply your brakes, then pay as you go insurance probably isn’t for you. The devices will record the amount of times that the brakes are used in a hard manner, indicating that you aren’t leaving enough time to stop in a safe way.
Telematics devices might also record how hard you take corners, adding another layer to your driver profile. If you speed around corners, pushing your vehicle to the limit, then pay as you go programs likely won’t help you to save money.
Many experts feel that telematics devices can actually improve some people’s bad driving behaviors. It is thought that many may change their bad driving behaviors if they feel that they can save money through safe driving.
When You Are Looking to Save Money
Pay as you go programs can also be considered when you need to save money on your car insurance. The poor economy has certainly be given a lot of credit for the swift rise of telematics devices and pay as you go programs, as many drivers are looking to save money in the face of cut backs and job loss.
If it is a choice between reducing coverage and trying a pay as you go program, then the pay as you go program is the most recommended option.
Reducing coverage such as dropping collision and comprehensive or lowering your liability limits to state minimums will only put you at great financial risk if you cause an accident.
Many people are willing to change their behaviors if they can save money, and pay as you go insurance programs can utilize that mentality. Some people might be in such a dire financial situation that they don’t have a choice but to change their driving behaviors. Pay as you go offers a method for lowering insurance costs through driving less and driving in a safer manner.
If You Can Live With the Restrictions
Another factor that every driver who is thinking of trying a pay as you go program must consider is whether the boundaries of the program might prove to be too restrictive. If you are trying to restrict your driving, what are you supposed to do if you want to go on a road trip? Will the fact that your rates might be affected keep you from a much-needed vacation?
You might be faced with restrictions on when you can drive, and even where you can drive. Not all people would be able to live with such limits. Driving represents freedom to many, probably stemming from the freedom that a driver’s license represented at the age of 16. If that freedom is restricted, then many drivers are not going to like it.
Furthermore, many worry that such devices have the ability to breach an individual’s privacy, according to Consumer Watchdog. While drivers understand that they are signing up to have their driving information recorded, what happens when that information is needed in a lawsuit, divorce proceedings or other legal matters? Many drivers wouldn’t want their information released to third parties for any reason.
The average savings from pay as you go car insurance programs will vary depending upon the details of the individual program.
A Daily Finance article put the average savings from pay as you go programs at around 30% or about $270 per vehicle.
Obviously, savings will also vary depending upon what rate drivers pay in the first place.
Some companies offer a 3% or 5% discount just for participating in a pay as you go program, and then add on additional discounts based on mileage and other factors. Of the programs outlined by the Oregon Department of Consumer & Business Services, a driver can receive a 20% discount with one program if they drive less than six miles a week. Another offers a 50% discount for those drivers who have an annual mileage below 2,500 a year.
There are generally a few different discount levels based on mileage, and most pay as you go programs have a cut-off. If you drive more miles than the cut-off limit, then you forfeit the discount.
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