Usage-Based Auto Insurance Pros And Cons
If you're looking for an innovative way to reduce your insurance costs, then you'll want to take a look at usage-based auto insurance. But before you sign on the dotted line, it's a good idea to weigh both the pros and cons of signing up for this type of auto insurance. The following contains some helpful advice when it comes to choosing a usage-based policy.
How Usage-Based Insurance Works
Insurance companies (such as Ashland Insurance Inc) typically calculate auto insurance rates based on a broad range of customer factors, from demographic information (age, marital status, etc.) to accident history, vehicle mileage and even credit score. Although the resulting rate reflects the above information, it usually doesn't take ever-evolving driving habits into account.
Usage-based auto insurance, on the other hand, uses real-time driving data collected via telematics to set and adjust insurance premiums.
There are several advantages to having a usage-based insurance policy for your vehicle:
- With usage-based auto insurance, you only pay for the amount of miles you drive each year. This makes it an ideal choice for drivers who use their vehicle on an infrequent basis, as well as for older adults on fixed incomes.
- Switching to a usage-based policy can also save money on premiums. According to the Chicago Tribune, those who did so could save anywhere from 10 to 50 percent off their current auto insurance.
- Telematics data also provides a way for savvy drivers to monitor their own driving habits, allowing them to find new ways to save fuel and shorten their daily commute.
In spite of the advantages, many people are concerned over how the use of telematics data could potentially raise privacy issues. For instance, the GPS devices commonly used for usage-based auto insurance can not only pinpoint exactly where a vehicle is located at all times, but also potentially record a person's driving patterns. This has led many to fear that their data could be used in a malicious manner.
You should also be aware of the other drawbacks to having usage-based auto insurance:
- Driving more can easily cost you more money, especially if you exceed an agreed-upon amount of miles during the policy period. Going over that amount could easily result in additional fees and surcharges.
- Many usage-based policies require the use of expensive telematics hardware for recording mileage and driving habits. The cost of this equipment is often passed onto customers through additional fees and surcharges.
- Some usage-based policies require you to visit an assessment station, where an authorized observer physically checks your vehicle's mileage. Not only is this a time-consuming task, but you'll end up using extra miles just for compliance alone.
Weighing the pros and cons of usage-based auto insurance can help you make an informed decision when it comes time to purchase a new policy.