Select insurance companies in the U.S., UK, and a few other parts of the world now offer pay-as-you-drive insurance. Pay-as-you-drive insurance, also commonly referred to as mile-based auto insurance and usage-based insurance, has been around for a little over two years in the U.S., but the majority of U.S. drivers still pay for traditional auto insurance. Mile-based auto insurance typically saves drivers around $200 a year and can save some drivers who only use their cars for travel infrequently up to around $500 a year. If you don’t drive very often, you may be considering this type of auto insurance to help you cut costs.

There are two types of pay-as-you-drive insurance available to U.S. drivers. The first type, offered by GMAC, is 100% mile-based. If you sign up for GMAC’s low mileage discount program, you’ll be charged according to how many miles you drive. If you drive fewer than 2,500 miles, for instance, you’ll only have to pay around $400 per year for your auto insurance, which is around half of what you’d ordinarily pay for traditional insurance. Even if you drive 12,000 miles a year, you can save around a hundred dollars by opting into GMAC’s low mileage discount program. The only catch is that GMAC requires you to sign up for their On Star service, which costs $200 per year, if you want to participate in their usage-based insurance program.

If you don’t want to pay for On Star, you might be interested in pay-how-you-drive insurance options. Right now, GMAC is the only U.S. insurance company that charges drivers solely based on how much they drive. Progressive, Allstate, State Farm, and Travelers all offer pay-how-you-drive insurance. The cost of this type of insurance is calculated based on how many miles you drive and how cautiously you drive. These companies figure out the price of your auto insurance using a telematic device connected to your car. This type of device keeps tabs on how much you drive and how often you speed, slam on your breaks, and take sharp turns. If you drive fast and somewhat recklessly or are uncomfortable with having all of your driving habits monitored, pay-how-you-drive insurance probably isn’t your best option.

Pay-as-you-drive insurance and pay-how-you-drive insurance are only offered in some U.S. states.  Additionally, how much money you’ll be able to save by signing up for these types of insurance depends on where you live. As of now, GMAC offers pay-as-you drive insurance in 35 states. The company does not offer this type of insurance in the following states: Alaska, Arkansas, California, Connecticut, Delaware, Hawaii, Iowa, Kansas, Maine, Massachusetts, New Jersey, North Carolina, North Dakota, Vermont, and Wyoming. Additionally, Progressive offers its Snapshot pay-how-you-drive insurance in 39 states, excluding Alaska, California, Delaware, Indiana, Montana, Hawaii, Massachusetts, North Carolina, Washington, Tennessee, and West Virginia. Allstate, State Farm, and Travelers each only offer pay-how-you-drive insurance in a handful of states.

Pros and Cons of Usage Based Insurance

As previously mentioned, usage-based insurance can save you a few hundred dollars a year. If you work from home and don’t drive your car very often, switching over to this type of insurance just makes sense. Additionally, research indicates that pay-as-you-drive insurance programs reduce car use and subsequently reduce carbon emissions and harm to the environment from unnecessary driving. It should also be noted that pay-how-you-drive insurance would likely reduce the number of traffic accidents that are caused by reckless driving.

Some critics of pay-how-you-drive insurance have argued that telematic devices that monitor driving behavior are invasive. Additionally, a few people who have pay-how-you-drive insurance have commented that telematic devices aren’t always accurate. When inaccuracy comes into play, drivers can end up being overcharged for driving acts they didn’t commit. So, usage-based auto insurance isn’t perfect. We can hope, however, that insurance companies will listen to the concerns of the public and adjust their practices accordingly, so we can all have access to reliable and more fairly priced auto insurance.

Susan Wells is a freelance blogger who enjoys writing about automotive and health news, technology, lifestyle and personal finance. She often researches and writes about automobile insurance, helping consumers find the best car insurance quotes online. Susan welcomes comments and questions.

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