Usage-based insurance may also be called pay-as-you-drive insurance. It is based on a driver’s vehicle, the distance driven, the time spent driving and the driver’s behavior. When compared with traditional insurance, this type of coverage is much different. Traditional insurers attempt to reward the drivers they classify as safe, and their assessment is based on past documentation and the individual’s record. The new method uses current behavior instead of past patterns. With the traditional method, drivers must wait longer to establish themselves as safe or reckless drivers. However, the new method does not require as much time for drivers’ habits to catch up with them and affect their insurance rates.
Many transportation and environmental groups approve the new usage-based coverage. They claim it makes people more aware of what they are doing. For most people, this means they will drive more responsibly. It also encourages people to use their cars only when they need them. For example, driving a few blocks to the grocery store instead of walking would look less tempting with usage-based coverage.
How Usage-Based Coverage Works
The simplest form of this type of insurance assesses costs based on the amount of miles driven. When, where and how a person drives may also be factored in with several insurance models. Premium amounts are based on how much a person drives, and coverage is based on the vehicle’s odometer. To track how many minutes a car is in use, a vehicle-independent module is used to transmit data using RF technology or cellphone features. The time of day, speeds, distance, driving actions and time traveled are also sent regularly. Formulas can be basic enough to include only the amount of miles driven. Alternately, they may be much more complex and include a wide array of features. With advanced features, the device is able to determine if a person should pay a higher premium for speeding, using a cellphone while driving or driving for a long period of time without a break.
Another type of system in existence is telematic usage. This system uses a device that immediately relays information as it happens, which keeps a constant feedback loop for drivers. When drivers increase their risks, their premiums change immediately. Although some drivers may think this sounds intimidating, it is actually a helpful way to enforce good driving behavior and make the road safer. The following are benefits of usage-based insurance:
– People are more socially and environmentally responsible.
– Actual risk for each driver is assessed on a more concise and up-to-date basis.
– Consumers enjoy more choices between types of car insurance.
– Responsible drivers can save more money without having to wait to clear old records.
– High-risk drivers pay more, so they are less inclined to spend time on the road.
– For responsible young people, rates are not based on group averages of peers.
– With telematic coverage, continuous tracking may help people who are stranded or hurt.
To learn more about this type of insurance and to find out what options are available, discuss questions with an agent.