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Can Pay-As-You-Drive Insurance Save You Money?

Find out how pay-as-you-drive insurance works, which companies offer it, and if enrolling could be a smart move for your finances.

By
Laura Adams, MBA ,
October 22, 2013
Episode #332

Pay As You Drive Car InsuranceWould you be willing to install a little gizmo in your car that tracks how you drive, if it could save you money on car insurance? More insurers are offering this technology—but, so far, consumers aren’t beating down their doors for it.

In this episode I’ll tell you how pay-as-you-drive insurance works, which companies offer it, and whether enrolling in one of these insurance programs could be a smart move for your finances..

 

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What Is Pay-As-You-Drive (PAYD) Car Insurance?

Pay-as-you-drive (PAYD) insurance goes by different names, such as:

·         usage-based insurance

·         mile-based auto insurance

·         telematics (a hybrid of telecommunications and informatics)

No matter what it’s called, the purpose is to set auto insurance rates based on your actual driving behavior instead of historical data and demographics, such as your credit, age, and gender. The idea is to reward safe drivers by charging them less.

Telematics technology makes it possible for an insurer to see exactly how skilled a driver is--except in a few states. Alaska, California, Hawaii, Indiana, North Carolina, and Tennessee, generally don’t allow carriers to use telematics to offer car insurance discounts.

When you enroll in most pay-as-you-drive programs, the insurance company sends you a small device that typically plugs in somewhere underneath your steering wheel. Other programs may work with existing vehicle techology, such as OnStar. 

Data about how you drive is sent to your insurance company so they can assess your risk and set your rate.

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