Should You Be Using This Little-Known Auto Insurance?

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  • Usage-based car insurance sets car insurance premiums by monitoring a driver's behavior, including when and how they drive.
  • These programs can help safe drivers score sizable discounts on their premiums.
  • But they're optional, so drivers don't have to participate if they're not comfortable with being monitored.

It can help safe drivers save big right out of the gate.

Cars are many people's primary mode of transportation, and that usefulness often justifies the high cost of owning one -- but not always. With gas prices skyrocketing, a lot of drivers are looking for ways to cut costs.

Driving less or ditching your car altogether are options, but there's another strategy many drivers overlook.

Usage-based car insurance is on the rise

An increasing number of companies are offering a usage-based car insurance option for interested drivers. This is where the insurance company monitors driving behavior, either through a mobile app or a small device installed in the vehicle.

Each program works a little differently, but many look at things like:

  • How many miles the car is driven
  • The time of day it's driven
  • Whether the driver accelerates or brakes quickly
  • Whether the driver appears to be distracted while driving

Then, the company uses this information to determine the driver's premium costs for the next policy term.

Benefits of usage-based car insurance

Usage-based car insurance is a great way for safe drivers to save on their car insurance. Many companies that offer usage-based insurance give participating drivers an upfront discount. And drivers who score well can earn additional discounts on future premiums.

While most of these programs focus primarily on safe driving behavior, others focus primarily or exclusively on miles driven. This can benefit drivers who use their vehicles infrequently.

In addition, the feedback drivers get from participating in one of these programs can lead to safer driving habits in the future. For example, if the monitoring device detects fast acceleration and braking, drivers can work on correcting this behavior.

Drawbacks of usage-based car insurance

Not everyone who participates in a usage-based car insurance program will score a discount. While many companies swear they won't charge customers a surcharge if they detect high-risk driving practices, there are a few that tack on extra fees when it's time to renew the driver's policy.

Then, there's the fact that these programs track drivers wherever they go. This can make some drivers uncomfortable, and that's probably why insurers make usage-based car insurance optional instead of mandatory.

Furthermore, the data these programs collect is sometimes lacking in context. For example, a driver might slam on their brakes to avoid a child or pet that ran unexpectedly into the street. While most of us would consider that to be good driving behavior, the monitoring device will register this hard braking as a negative behavior. It also can't tell who's driving the vehicle, so if someone else borrows the car, their driving behavior could negatively affect the policyholder.

Where to find usage-based car insurance

Many large auto-insurance providers offer usage-based car insurance these days. Each company has its own name for its program, and not all programs are available in all states.

For most drivers, it's best to get car insurance quotes from several companies. Narrow down the options based on coverage, cost, and customer service. Then, look into each company's usage-based car insurance program.

Inquire about how it works, which factors it looks at, and the potential discount available before deciding whether to enroll. Keep in mind that it may be possible to enroll later if the driver chooses not to right away.

Usage-based car insurance isn't going away, and it can be a great way for safe drivers to shave a little off their monthly premiums. But whether drivers participate is up to them. Most car insurers offer plenty of other discounts to drivers who don't feel comfortable having their behavior monitored, so it's still possible to score a great auto insurance rate without it.

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