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How safe drivers can stop overpaying for auto insurance

Fact-checked with HomeInsurance.com

Your insurance company will price your car insurance based on an estimation of how much risk you pose. It will use factors like your driving history, your claims history and your location to predict the amount you’ll need to draw from the system. But, in most states, it can also use other factors that may have a less obvious connection to your level of risk, such as your gender and your credit score

These factors can mean that safe drivers overpay because they fall into a higher risk group and can even lead to discriminatory pricing. Insurance startups and even some large legacy insurers are offering an alternative: car insurance rates based on information about how you actually drive.

What is usage-based car insurance?

Usage-based car insurance is a type of car insurance that uses telematics data, which is information about your driving, like braking, turning and miles driven, to determine your rate. Unlike traditional insurers that use general categories to assign premium rates, usage-based insurance enables insurers to get a more tailored view of your individual driving habits.

That means even if you fall into a traditional higher-risk category but demonstrate that you’re a safe driver, you may see significant savings. For many who have been financially affected by COVID-19, these savings could be the difference between making ends meet or not.

Dan Preston, CEO of Metromile, a leading pay-per-mile insurer, notes that “previously, drivers would wait for their insurance company to investigate risk and provide a more accurate or lower premium, but now they realize they don’t have to wait.”

Pay-per-mile car insurance 

Some usage-based car insurance companies, like Metromile, focus on the number of miles you drive when determining rates by providing a set base and per-mile rate that determines what you’ll pay each month. Although a pay-per-mile insurer will still take into account your location and other relevant risk factors when determining your price, it provides increased transparency into your monthly premium.

How does it work?

Usage-based insurers can track telematics data either through an app on your phone or through a tracking device that plugs into your car, but each insurer will have a slightly different way of determining your monthly rate. Root Insurance, for example, has customers complete a “test drive” for 2-3 weeks when applying for a quote and then charges a flat premium for the duration of your contract.

Along with the ability to collect driving data digitally, usage-based providers typically offer the ability to buy your insurance online. “With COVID-19, almost every purchase is now online, and this may be what insurance looks like long-term,” Preston says.

Will usage-based insurance affect my coverage?

Even though usage-based insurance is based on how you drive, you can still get coverage that will protect your vehicle when you’re not driving, such as comprehensive and collision. If you’re looking to switch insurance companies, you can request a quote based on your current policy to make sure you can get the same coverage with the new company.

Should you switch to a usage-based car insurance policy?

If you’re considering switching to a usage-based car insurance policy, ask these 3 questions to find out whether it is a good fit for you: 

1. Are you a safe driver?

The whole idea behind usage-based insurance is providing savings for safe drivers, so if you like to live life on the edge, a program that closely monitors your driving style may not be in your best financial interest. Also, make sure you understand the way your insurance company or program measures “safe driving” so you can get an idea of whether it will actually save you money. 

Even if you did lots of driving before the coronavirus, keep in mind that your post-COVID-19 commute might look different than before. “Companies will likely return employees to offices in stages, and some workers will start to work remotely one or two days a week going forward,“ Preston predicts.

2. Is a consistent monthly bill important to you?

Working with a pay-per-mile insurer can help you save by basing your monthly premium on the number of miles you drove, but that means your monthly bill can fluctuate. If a consistent monthly bill is a helpful part of keeping your budget, choose an insurer with a premium option that can fill that need.

3. Are you comfortable sharing your personal data?

In our modern lives, we have become accustomed to trading personal data for convenience and savings, but it’s important to understand the trade-offs we make with our personal information. Real-time and historical data like location, speed and time of day are all accessible by the insurer which is essential to assessing risk this way, but it is something important to keep in mind when weighing your options.  

Samantha Kostaras

Insurance Reporter

Samantha Kostaras is an insurance reporter who covers financial services and insurance. Before becoming a writer, she worked as a financial analyst and earned her Bachelor’s degree in Finance from the University of Alabama.

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