Many auto insurance companies offer policies that adjust what you pay based on how much you drive or how well you drive. Here are some things to know when deciding if this type of policy is right for you.
1. Pay-by-the-mile policies
These policies charge you a base amount plus a fee for the number of miles you drive each month. Most companies measure this through a device attached to your car’s computer. If you have an older car without a connection, ask your company if you can take a picture of the car’s odometer instead.
Pay-by-the-mile policies might be good for people who work from home. Some companies offer a cap on the number of miles you drive each day so you don’t get charged too much for the occasional road trip.
2. Usage-based policies
Usage-based insurance policies also use a device plugged into the car’s computer or a phone app to monitor how you drive. They look at where and when you drive, how fast you go, and your braking and acceleration habits, among other things.
Your insurance company uses that information along with other factors – such as your age, type of car, and driving record – to set your cost.
3. Is it a good deal?
These types of policies could lower your premium cost if you drive safely or don’t drive a lot. Be sure to get an estimate and compare it to the cost and coverage of your current policy.
- The National Association of Insurance Commissioners Drive Check tool can help you figure out if a usage-based policy could save you money.
- The Federal Highway Administration says the average car is driven 13,476 miles a year, or 1,123 miles each month. If you usually drive less than that, a pay-by-the-mile policy might be a good choice.
4. What about my privacy?
Here are some questions to ask when considering these types of policies:
- What device will my insurer use to track my driving? What exactly will be monitored?
- Do I want my company to have information about my driving?
- Am I a good driver? Do I think my driving style will help lower my premium cost?
- Could that information be used after an accident?
For more information, click here.
- Ask students if they would consider pay-by-the-mile auto insurance policy. Why or why not?
- Ask students to talk to friends or relatives who might have pay-by-mile insurance policy. What can you learn from their experience?
- What type of drivers should consider pay-by-the-mile auto policy?
- Under what circumstances pay-by-the-mile auto insurance policy could lower your premium?
During the pandemic and at other times, if you drive very little, consider pay-per-mile car insurance to lower your premium. According to the U.S. Department of Transportation, the average American drives about 13,500 miles a year. Insurance companies estimate that a person would likely benefit from pay-per-mile insurance program if they drive less than 8,000 miles annually.
Pay-per-mile insurance may be appropriate for people who work from home, are in college, regularly use public transportation, or who have a second vehicle that is rarely used. This coverage has a base rate, which is determined similar to traditional auto insurance. After that, the per-mile rate is added on. High mileage, aggressive driving, and overnight driving can result in higher auto insurance rates.
Usage-based insurance programs use telematic technology with an app or in-car device to track your driving. Instead of in-car monitoring systems, some companies require that you submit a photo of your odometer each month.
Another type of usage-based insurance is pay-as-you-drive with rates based on driving habits. With this coverage, rates may increase as a result of bad driving habits. Behaviors that are monitored include hard braking, acceleration and speed, the time of day you drive, mileage, and cellphone use.
For additional information on pay-per-mile car insurance, click here
- Have students talk with others to learn about their current auto insurance coverage and costs.
- Have students conduct online research for pay-per-mile and pay-as-you-drive auto insurance to obtain additional information on the features, benefits, and drawbacks of these coverages.
- What features of pay-per-mile car insurance might be appropriate for you or people you know?
- How might a person reduce the amount paid for auto insurance?
If you don’t own a car but regularly drive a rental vehicle or another person’s car, consider non-owner car insurance. This coverage provides liability protection to pay for injuries and property damage of others in an accident. Damage to the car you are driving or your injuries are usually not covered. In some states, you may also obtain coverage for uninsured/underinsured motorist protection and medical payment for your injuries.
Recommended situations for non-owner car insurance include:
- · When using a car-sharing service, such as Zipcar or Turo.
- · To maintain continuous coverage between selling your car and buying a new one.
- · If you frequently rent cars.
- · If you frequently borrow other people’s cars, especially if you want a higher level of coverage than that of the vehicle’s owner.
- · When obtaining or reinstating a driver’s license, some states require insurance to show “proof of financial responsibility.”
If you frequently borrow a car from someone in your household, non-owner insurance is not recommended. Instead, you should be included as a covered driver since all driving-age household members may be required to be listed on the policy. If you drive rarely, buy insurance when renting a car or you may be covered on the policy of the person whose car you borrow, if driving with their permission.
To obtain non-owner car insurance, directly contact an insurance company or agent. Most insurers don’t provide non-owner quotes online. Non-owner car insurance usually has a lower cost than the same liability coverage if you owned a car.
For additional information on non-owner car insurance, click here.
- Have students contact an insurance agent to obtain rate information for non-owner car insurance.
- Have students create a visual (poster or slide presentation) describing situations in which non-owner car insurance might be appropriate.
- When might non-owner car insurance be of value to a driver?
- Describe actions people might take to determine if they have adequate auto insurance coverage.
- How does it work?
Most usage-based car insurance policies have you plug a small device into your car’s diagnostic port, which is usually under the dashboard. Others use cell phone connections or apps. All of them send information about your driving to your insurer.
- Is it a good deal?
It could lower your premium if you drive safely and don’t drive lots of miles.
- How about my privacy?
There are many privacy issues to consider related to these types of policies.
For more information click here.
- Ask students to find out if their car insurer offers usage-based insurance.
- Under what circumstance will you consider purchasing usage-based car insurance?
- What might be the purpose of using global positioning systems and other technology in determining the car insurance premiums?
- Will younger drivers embrace the monitoring devices, especially when car chips allow parents to monitor the speed and braking habits of young drivers?
Having adequate auto insurance and determining what coverages are needed are fundamental for avoiding financial difficulties. Consumer Action (www.consumer-action.org) offers a variety of materials related to shopping for auto insurance, managing auto insurance costs, and obtaining assistance when encountering trouble when filing a claim.
These resources includes downloadable publications on the basics of auto insurance in English, Spanish, Korean, and Vietnamese. Also available are PowerPoint slides and lessons plans.
For additional information on auto insurance resources, click here.
- Have students develop actions that can reduce the cost of auto insurance.
- Have students create a video that demonstrates financial problems associated with not having adequate auto insurance.
- What are information sources that might be used to become better informed on auto insurance?
- How might a person reduce the cost of auto insurance?
Saving money can be automatic with some simple actions that would reduce your monthly spending. Some actions, which can include lowering your monthly cash outflows by as much as $400, include:
- Using a programmable thermostat which can be used to automatically raise and lower the temperature in your home, resulting in energy savings.
- Increasing insurance deductibles for your home and auto insurance which will likely result in an annual savings of several hundred dollars.
- Practicing less aggressive driving; using a constant speed can save money on fuel costs.
- Seeking out ways to reduce your communication bills, such as using basic cable along with streaming video on your computer. Also, using a free texting app on your phone.
- Using a refillable water bottle can save hundreds of dollars by not buying bottled water.
To ensure that you actually save this money, each month, have funds automatically moved into a savings account or investment program.
For additional information on saving, go to:
- Have students conduct online research to determine various actions to reduce spending and increase savings.
- Have students interview several people to determine various actions that might be considered for reducing spending.
- What actions have you taken to reduce spending and increase savings?
- Explain short-term and long-term benefits of reduced spending.
Auto insurance requirements vary from state to state. Check with your state insurance regulator to learn more about individual requirements as well as insurers you may be considering for the insurance policy.
To get the best coverage at the best price, get several quotes from insurance companies; it may save you hundreds of dollars every year. What can you do to reduce your insurance premiums?
Raise your deductible on collision and comprehensive coverage. If you own an older car, you might want to eliminate this coverage altogether. Don’t forget to take advantage of discounts available to you. For example, you may be eligible for a discount based on the number of miles you drive; your age; your good grades if you are a student; your driving record; or if you have taken a safe driving course. You may also be able to get discounts if you insure more than one vehicle, insure your vehicle and home with the same company, have anti-theft devices, or have safety features as air bags or anti-lock brake system.
For more information on automobile insurance costs go to www.naic.org; http://www.insure.com; and http://www.insweb.com
1. What can you do to reduce your automobile insurance costs?
2. Why better college grades result in reducing your automobile insurance costs?
You may want to use the information in this blog post and the websites to
* Have students research various types of discounts available to them.
* Research the make and model of vehicles that are most frequently stolen, consequently resulting in higher insurance rates.