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Samantha Alexander
Samantha Alexander
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Pay-As-You-Drive Insurance: How It Works & Why Drivers Are Concerned

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Nobody likes paying higher auto insurance premiums but unless you’re willing to cut coverage (not advised) or drop your policy (downright irresponsible), then you don’t have much of a choice. Average auto insurance premiums rose 35% from 2012 to 2013, according to J.D. Power and Associates. However, Pay-As-You-Drive insurance programs offer a ray of light for some consumers.

PAYD insurance programs, sometimes referred to as usage-based insurance or telematics, allow consumers to have their auto insurance premium calculated based off of their driving habits. By installing a telematics device in your car, an insurer can track elements of how you act behind the wheel. Some PAYD programs simply track how many miles are driven. Some take into account other factors such as how hard you brake or what time of day you drive.

The general idea is that if you are a good driver, you’ll be rewarded with low auto insurance premiums. Depending on the insurer, consumers can save anywhere from 5-30% (sometimes even more) by opting for a PAYD policy. Here are some notable examples of PAYD programs available in the industry:

  • Progressive’s Snapshot: This program uses a small plug-in telematics device that tracks the time of day you drive, how far you drive and how often you brake hard. The device must be installed for 30 days to generate a driving profile and you can try Snapshot for 30 days without even being a Progressive customer.
  • State Farm’s Drive Safe & Save and In-Drive: You need OnStar or SYNC for Drive Safe & Save. State Farm receives odometer readings from OnStar or SYNC every 30 days after you enroll and, after six months, adjusts your premium to reflect the mileage. Discounts can range from 10% to 15%. In-Drive uses plug-in device to track time of day and vehicle speed, how many miles driven and how often you brake hard.
  • Safeco’s Rewind: This PAYD program is offered for motorists who are paying higher insurance rates because of traffic tickets or accidents. A plug-in device monitors their driving and keeps a record of the usual details. After 4 months, the record is evaluated by Safeco, which may reduce or eliminate the premium increases that came because of the accidents or violations.

Allstate, The Hartford, Esurance and Travelers are some of the other big names to offer PAYD programs. However, PAYD programs are not available in all states.

Some downsides of PAYD

So, are PAYD programs the white knight for consumers stuck with high auto insurance premiums? Maybe not.

There are some drawbacks of PAYD programs. In a 2014 study by Princeton Survey Research Associates International, 51% of respondents said they would never consider enrolling in a PAYD insurance program. The number one reason? Privacy concerns. Of the respondents who would never consider enrolling, 21% said their primary concern was sharing personal information.

In this case, it’s important to know that insurance companies have contractual obligations with their customers to keep telematics data secure and private. The data is collected purely for the purpose of setting premiums. An insurer cannot provide driving data to third parties without permission from the customer or a court order forcing them to do so. If you simply don’t want your insurer knowing where you are and how you are driving at all times, then PAYD insurance might not be the right fit for you.

Another downside is that these programs are not helpful to consumers who drive a lot. Because PAYD insurance is usage-based, consumers who drive less than 10,000 miles a year are often rewarded with lower premiums. Drivers who face a brutally long work commute or frequently travel likely won’t benefit from a PAYD program. The same goes if you’ve got a lead foot or frequently drive late at night.

However, there are some misconceptions about PAYD programs, which the 2014 PSRAI study addresses. 52% of respondents said that they think insurers can gather information about whether or not they’ve been drinking and driving and 35% said they think driving in “neighborhoods with a lot of crime” could increase rates. Neither of these claims is true.

The verdict? It’s your choice

So what’s the bottom line on pay-as-you-drive insurance? PAYD programs can potentially help drivers save money on auto insurance, which is a good thing. However, these programs aren’t the best option for everyone. For the most part, those who drive less will end up saving more. That can be reason enough for many policyholders.

Samantha Alexander writes for HomeownersInsurance.com, an online insurance resource for homeowners and drivers across the country. Offering comparative automobile and homeowners insurance quotes, consumers rely on HomeownersInsurance.com for the most competitive rates from the top-rated insurance carriers in the country. The HomeownersInsurance.com blog, Square One, provides tips and advice on a range of financial topics to help homeowners and homebuyers make educated decisions about their insurance purchases.

1 Comment

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  1. Azakawa Karim says:
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    As well there are pros to some, cons to another, somewherre down the line, National Security will devise a device to add on in order to keep track of people of interest.