For years, companies have pounded the airwaves with commercials for usage-based car insurance, also known as pay-as-you-drive insurance. According to U.S. News and World Report, experts call this type of insurance "telematics," a term that combines technology and information. While this isn’t exactly a new concept, some consumers are still skeptical as to whether it is truly a good deal, or something that sounds too good to be true. Read on to get the basics of pay-as-you-drive insurance, and judge for yourself whether this method is legitimate, or a creative ruse.
The Big Idea
Pay-as-you-drive insurance is based on the idea that good drivers don't mind their insurance companies tracking their driving habits -- from how fast they drive to how hard they brake. It relies on a special device that drivers attach to their cars, which provides the insurance company with these measurements. Telematics Update, an industry website, estimates that a million cars in the United States used a telematics device in 2012. That number rose to 5 million cars in 2013. Despite the increase, only 1 in 3 American drivers are aware of usage-based insurance at present.
Most national insurance companies offer usage-based insurance, but they may not offer it in every state. Insurance is regulated on a state-by-state basis, and there is no standard nation-wide. So, while you might find a popular carrier who says they offer pay-as-you-drive insurance, it may not be available in your particular area.
What Are the Cost Savings?
U.S. News says drivers can save between 20 and 50 percent with usage-based insurance, depending on the insurance company. Some companies offer an immediate discount just for installing a telematics device because they are eager to spread the trend. However, a driver’s driving habits will also be taken into consideration when calculating cost.
The information gathered by telematics varies. However, most devices measure mileage, speed, and can even record the time of day (or night) you are driving. Many devices come equipped with a GPS feature, which bothers some consumers since the insurance company can track down their location. While most insurance companies don’t actually use this information for anything significant, it is unsettling for those who want more privacy.
Who Does the Insurance Benefit?
Most insurance companies want drivers to use telematics devices, but there is little incentive for some people to sign up. Usage-based insurance is best for drivers who work from home or have short commutes. Some companies charge based on the distance someone drives. This is appealing to urban drivers who use public transportation during the week and personal cars on the weekend. The less they drive, they less they pay for insurance.
There are good arguments for and against pay-as-you-drive insurance. Consumers have more control over their insurance expenses, but too much information can be a privacy concern. If a wreck happens, telematics data can work for or against a driver. As with all insurance, it's a good idea to do the homework before signing up for usage-based coverage. The information for this article was provided by the professionals at Eisenhauer Insurance Inc., who provide car insurance in Nova Scotia.