There are a lot of names to keep track of: “Pay As You Drive”, “Pay How You Drive”, “Mile-Based Auto Insurance”. We know usage-based car insurance can get confusing quickly, especially when not all the terms are synonymous. Here’s what you need to know.
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History of Usage-Based Car Insurance:
Usage-based car insurance actually started in the UK nearly ten years ago. In 2006, the UK insurance carrier, Norwich Union, offered one of the first “Pay As You Drive” policy programs where drivers could make informed choices about which times of day to drive in order to save money. Driving during busy hours would cost more due to risk, but driving during low-traffic hours would cost very little. In the end, it was up to the driver to decide when to drive in order to lower their premium.
Usage-based insurance has come a long way since then and the phenomenon has taken off and expanded to the United States, thanks to vehicle telematics. The idea of paying for car insurance by usage appeals both to the budget-conscious and the environmentally aware as they seek ways to drive less and pay less for it. While all of the usage-based insurance options are based on car use, the information each subcategory uses to determine rates differs.
Types of Usage-Based Car Insurance:
- Pay As You Drive
The Pay As You Drive usage-based program typically denotes the installation of a device into your car that then measures your driving habits.
Progressive currently offers a program called SnapShot. The telematics device is installed into your vehicle and measures how you drive, based on speed, hard braking, time, mileage and more. The device is typically only installed into your car for a certain amount of time, at least 75 days, after which you’ll see how much your rates are lowered. Email updates alert you when your rate has changed. Of course, with bad driving habits, your rate may increase, though Progressive notes that a rate increase is rare and would likely occur only at renewal. In some states, the maximum discount attainable is set 25%.
Allstate offers a similar program called DriveWise where a device is installed and measures the same factors of brake activity, time of day, speed, and mileage. The driver can then receive up to a 30% max discount or they can use their DriveWise points towards a rewards program to purchase goods.
- Pay How You Drive
- Liberty Mutual offers a Pay How You Drive program called Onboard Advisor that is typically designated for commercial and private fleets. The better the driver, the better the price reduction. The end discount is up to 40%. The company also offers RightTrack in connection with Subaru Starlink cars. Subaru owners can save money on their insurance through the RightTrack app.
- Pay-Per-Mile Car Insurance
Per-Mile car insurance differs from other usage-based insurance in that it does not measure, or use, any of your driving habits. It is based solely on miles driven, and operates from there to determine your rate.
- National General offers low mileage discounts that work as a Pay As You Go policy. Instead of saving only 2% on your premium like you might at other carriers for a low mileage discount (typically under 7500 miles a year); National General offers multiple tiers allowing you to save over 50% your auto insurance premium based on the distance you drive. This program is offered in over 35 states.
- MetroMile is a newer company that offers rates solely by mileage. Each individual receives a monthly base rate that factors in the information that all providers do – driving history, location, car make, etc. This usually ranges from $20-45 a month based on your risk. From there, you will have a per-mile cost, around $0.04 or more per mile. The miles are measured by the MetroMile Pulse, a small device that is plugged into the diagnostic port of the car. If you plan to go on a road trip or elsewhere, the costs max out at 150 miles a day so you won’t pay more for a couple of long travel days. Currently, MetroMile is available in California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia and Washington. This is likely a cheaper car insurance option for those that drive less than 10,000 miles a year. It also works with the app MetroMile Tag to give you car details like conveniently remembering where you parked, commute optimization, and street cleaning alerts.
Positives and Negatives:
There’s no doubt that usage-based car insurance is innovative. Yet, as with most technology, there are some factors worth considering.
Privacy concerns may be cause for you to stop and consider whether or not usage-based insurance is right for you. In a world filled with constant information sharing and increased dependence on technology, the thought of giving up another bit of privacy may make you want to back away slowly.
After all, some of these programs share all of your driving habits with your carrier, possibly resulting in rate increases. That said, UBI is increasing in popularity and becoming more focused on customer experience. You don't drive like everybody else, so why should your rate be based on theirs? Depending on your needs, more frequent communication with your insurer, and possibly more savings, may be exactly what you're looking for. Weigh out the pros and cons to determine what works best for you.
Photo Credit (top image): Stephen Cummings