No matter what kind of car you drive, the state you live in likely mandates that you need to maintain current and sufficient car insurance coverage in case you get into an accident. For those who drive long distances to work, for work, or even just for recreational reasons, standard auto insurance makes sense. Once you reach your minimum coverage requirements, you’re paying for full protection.
However, there’s another type of car insurance you may want to consider: usage-based insurance. This insurance may be an effective option for people who aren’t using their vehicles as much or who have excellent driving habits on a regular basis that prevent accidents. If you’re thinking about opting for this type of insurance, learn more about the ins and outs of usage-based insurance to make a decision.
Usage-Based Insurance vs. Standard Insurance
While many people are familiar with how standard auto insurance works, they’re often not as familiar with usage-based insurance. This kind of insurance has two variations that impact how much money you actually spend on your coverage. The first simply measures the distance and time you travel and charges you a premium based on the distance covered. This lets you save money during months that you travel through other means or don’t drive your vehicle at all.
The second kind of usage-based insurance uses more data than just the distance you travel to gauge your driving habits. If you observe all the rules of the road and are a safe driver, this form of insurance provides a lower premium, even if you’re still driving far or often. In either case, you use a device with GPS capability — typically either your smartphone or a separate device plugged into your car, depending on your insurance provider’s requirements — to monitor your driving and report it to your insurance company’s data-collection systems.
Standard insurance brokers use underwriters to look at factors like where you live, the type of car you drive, and your driving history to determine an appropriate monthly premium. Some programs incorporate an aspect of usage-based insurance to provide discounts on premiums, but even those programs still charge you a full month’s premium for occasional driving.
When and When Not to Get Usage-Based Insurance
Considering how different usage-based insurance is from standard insurance coverage, there are some significant advantages you might notice immediately. Despite these advantages, it’s not always ideal for everyone to choose usage-based insurance. Consider the following before making a decision.
When to Get Usage-Based Insurance
The two main groups of people who typically benefit from this kind of insurance are those who drive rarely and those who drive safely. The Federal Highway Administration reveals that the average U.S. driver puts just over 14,000 miles on their car per year. If you drive significantly less than that amount, then you may save money on your premiums with usage-based insurance in the “pay per mile” style.
To determine if your driving habits might help you benefit from usage-based insurance, it helps to consider several factors. Policy Genius explains that the primary factors in determining driving habits include braking, speed, driving times, idling time in traffic, phone usage, and total driving distance. The key takeaways are to avoid hard braking, excessive speeding, driving at night, getting stuck in gridlock conditions, using your phone while driving, and putting many miles on your car.
When Not to Get Usage-Based Insurance
The average driver is not likely to benefit much from usage-based insurance. As mentioned above, the average driver puts quite a few miles on their car annually, so unless you’re splitting your driving between several different vehicles, you may be better off getting a standard policy if you’re driving as much or more than other motorists.
Similarly, usage-based insurance determines the discounted rate based on behaviors that are better than average. It’s common to think that your driving skills are above average; a study by AAA mentions that 80% of American men believe that they’re better-than-average drivers. If you don’t know how your driving habits stack up, check to see if your current insurance provider offers a “good driver” discount and find out if your driving habits qualify you for that before you make the switch.
While usage-based insurance is not for everyone, it can be a great way to save money for particularly prudent drivers and those who don’t drive often most of the time during the year. Reach out to your insurance provider and see if it offers these programs to get started.
Resource Links
“Americans Are Dangerously Overconfident in Their Driving Skills – But They’re about to Get a Harsh Reality Check” via Business Insider
“What Is Usage-Based Insurance?” via Policy Genius
“Average Miles Driven Per Year by State: Why You Should Care” via Trusted Choice