For those who are ready to cut the cost of automobile insurance this year, enrolling in a pay-as-you-drive program may be the solution to driving down rates.
Many people haven't heard about this option, but let's explore how a PAYD policy works, the major pros and cons, and how much can be saved.
PAYD auto insurance gives discounts based on driving behavior. The safer an individual appears to an insurer, the less that person will pay.
Some PAYD programs only track mileage through self-reported odometer readings or an on-board communication system. The less one drives, the less likely he or she is to get into an accident and make an insurance claim.
So drivers who are on the road less get bigger discounts.
Other PAYD programs monitor mileage in addition to metrics such as average driving speed, how hard the driver hit the brakes, and when and where one drives. Data are typically tracked by a small device provided by the insurer that is plugged into a port under the dashboard.
Drivers who stay within safe ranges set by the insurance company qualify for lower rates. For instance, those who drive less than 12,000 miles per year, never exceed 85 miles per hour and rarely drive after 2 a.m. will pay less than a driver with high mileage and a lead foot.
These technologically advanced programs go by several different names other than PAYD such as distance-based insurance; mile-based insurance; pay-as-you-go insurance; telematics, which is a hybrid of telecommunication and informatic; and usage-based insurance.
The major benefit of PAYD insurance is that the rate is influenced more by driving behavior and less by aggregated driver statistics, past driving record and personal characteristics. That levels the playing field and can make car insurance more affordable for those who typically pay the most such as single, young males and anyone with poor credit.
With traditional auto insurance, the rates paid are largely based on personal characteristics that can't be changed such as age, credit rating, gender, marital status and years of driving experience.
Vehicle tracking devices also monitor driver safety and reduce the frequency of theft by allowing stolen vehicles to be located quickly and recovered. All these benefits allow insurers to cut costs and pass along a percentage of the savings to policyholders.