Car Insurance Rates Based on Usage

Have you scaled back your driving recently to save on fuel costs? If so, you might be in a position to save on car insurance as well. Car insurance companies have always offered low-mileage discounts based on how far you commute and the number of miles you drive annually. Now, though, car insurers are thinking of ways for you to pay for car insurance based on the exact amount of driving you do. This concept is called usage-based car insurance, or pay-as-you-drive insurance. A special device in your vehicle tracks your mileage, and, when it's time to renew your policy, your premiums will be partially calculated based on your usage and possibly even your driving habits.

A Long Time Coming

Several insurance companies have been working toward usage-based car insurance for years. For example, Progressive Insurance has been testing and revising usage-based programs since a 1999 pilot test in Texas. Progressive now offers MyRate, a pay as you drive program. Progressive has made MyRate available in Alabama, Michigan, New Jersey, Minnesota, and Oregon. By the end of 2008, the company plans to offer it in a handful of other states and nationwide by the end of 2009.

How It Works

A data-collecting device plugs into your steering column and reports data on your mileage, how often you drive, when you drive, and how you drive. This data is sent to the insurance company via a cellular connection. The usage data is still used in conjunction with traditional insurance rate factors, such as your age, gender, location, and driving record, in determining your premiums. Insurance representatives say the program empowers drivers to control their insurance costs and save as much as 60% on their premiums if they're at home most days. However, the device could backfire on you as well-people who drive a lot, drive fast, or drive frequently late at night might have to pay a 9% surcharge.

The Savings

How much you can save with usage-based car insurance will vary by state. For instance, Progressive customers in Alabama can save up to 40% on their premiums with a $5 monthly technology charge. Participants in Progressive's MyRate program can fall into one of 400 different usage-based insurance groups based on how much and how they drive. In order to qualify for discounts, drivers must fall into one of the top 75 groups. Progressive customers can view their driving profile online, arrange their trips by date and type, and see their expected discount. Participants are also free to drop out of MyRate at any time if they don't like their anticipated new rate. Progressive customers also have the option to select MyRate for some vehicles on their policies and not others. So, for example, if you have a car that sits in the garage most days, you might realize significant savings by signing it up for usage-based insurance.

For anyone who needs to drive a lot of miles for work or school, it might be a good idea to consider buying a hybrid. There are great discounts offered from car insurance companies for driving these economically-friendly automobiles. Find out how much you could save by driving a hybrid.