Is Pay as You Go Car Insurance Right for You?
Pros and Cons of a New Automobile Insurance Option
Jun 3, 2009
These days, everyone is looking for ways to cut costs, but unfortunately when it comes to auto insurance there isn't much room for cutting back. Anyone that owns and drives a car is required by law to at least carry a minimum amount of coverage. Many drivers are frustrated that with the standard automobile insurance model it costs the same whether driving 6 miles a week or 600, and are looking into pay as you go as a cheaper auto insurance option.
What is Pay as You Go Car Insurance?
Pay as you go insurance is an auto insurance program currently being offered in 13 states by Progressive Casualty Insurance Company in Cleveland (MyRate) and in multiple states by GMAC Insurance in Winston-Salem, N.C. Other insurance companies like the Hartford insurance company, Allstate and Unigard are testing a pay as you go auto insurance program or similar program as well. This auto program is also already available in Canada, the U.K., Japan, Africa and Israel.
How Pay as You Go Insurance Works
Drivers plug a tracking device into their vehicle which tracks and records the miles traveled and then transmits the data to the insurance company. The device or "black box" could also monitor location like a GPS system and driving habits such as frequent and abrupt starting and stopping and hard braking or frequent heavy acceleration.
Pros of Pay as You go Car Insurance
- Car Insurance companies are offering 25-50% percent discounts to drivers with low mileage. Progressive's MyRate program currently offers an immediate first term discount of up to 10% just for enrolling. This discount is for the first policy term only but when the insurance policy is renewed, the rate could go down by up to 25% or more, based upon not only low mileage but driving habits as well.
- Families with multiple cars can benefit from low mileage car insurance programs. Even if the main vehicle in the family doesn't qualify because of mileage, the secondary car might. It would be beneficial to maintain the regular insurance coverage on the main car and use the low mileage insurnace with the secondary or any other vehicles that aren't used as frequently.
- Low mileage insurance policies give people an extra incentive to walk, ride bikes or use public transportation, which is especially budget friendly with the rise of gas prices. This would also mean less pollution, traffic congestion and traffic accidents.
- The new options could be a cheaper car insurance alternative for young drivers and high risk drivers, possibly cutting rates for 18-21 year olds and others who tend to pay extremely high insurance premiums. Sometimes the savings is as much as 40%.
- Some consumers feel that the tracking device is in some way an invasion of privacy. Progressive's MyRate does not include GPS capabilities and only monitors when and how a person drives and not the vehicle's location.
- Many of the pay as you go insurance programs favor mileage below 10,000 miles per year. There are systems in place that allow insurance discounts on different levels of mileage; the greatest discount is for the lowest mileage drivers.
- The cost of the monitoring device or On Star program that is sometimes required for the program may offset the actual savings of pay as you go insurance.
- As with most pay as you go programs and other cost saving programs, there could be fees for going over or exceeding the number of miles in the program.
- The insurance rate may change according to day or nighttime driving, much like pay as you go cell phones. If the policy limits mileage at night then for night drivers it may not be cost efficient. Even if drivers don't typically drive in the middle of the night (when most accidents happen), there could be unforeseen emergencies when a person would need to, and this could boost the cost of the insurance rate.
Deciding if Pay as You Go Car Insurance is Right for You
When considering a pay as you go insurance program, drivers should look at the contract and weigh the pros and cons. Calculate any costs for the program and any possible fees that might be incurred and compare them to the savings received on the insurance premium. Contact the insurance company for quotes and availability.
Halvorson, Bengt. Car Insurance Savings Come with 'Big Brother'. CNN.com, 2009
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