What is usage-based auto insurance?
If you’re looking for ways to save money on your annual auto insurance premiums – and let’s face it we all are – usage-based insurance can help you do it.
Usage-based auto insurance is also known as telematics. It’s a way for insurance companies to track your driving in real-time and reward safe drivers for their good behaviour.
The better your drive, the cheaper your car insurance premiums are. That makes sense. If you have several traffic violations and accidents on your driving record, your insurance premiums will be higher. That makes sense too.
If you want to save even more money on the cost of your auto insurance you can install a usage-based device that lets insurance companies keep track of your day-to-day driving habits and adjust your premiums accordingly.
How does usage-based auto insurance work?
Using telematics is actually quite easy. All you need to do is attach a device to the diagnostics port in your car. It will measure every move you make while driving from how fast you accelerate to how quickly you brake. The information is relayed to your insurance provider, and they can determine whether or not you’re a safe driver and adjust your auto insurance premiums to reflect your driving behaviour.
It’s important to note that the savings won’t start until your current insurance policy is up for renewal. Your insurance company can’t (or won’t) adjust the premium cost while an existing policy is in force. When it’s time to renew, shop around for auto insurance and ask for applicable discounts. This used to include having a good credit score, your past driving record, and your age and sex. Now, with usage-based auto insurance, it also includes how you drive on a day-to-day basis.
Why insurance companies like Telematics
Usage-based insurance is like playing scissors, rock, paper to make a decision: it’s a fair and completely unbiased way for insurance companies to evaluate your driving habits. There is no gray area with telematics, only black and white data. It takes your exact habits and transfers them to your insurance company. There’s isn’t a police officer writing a ticket for running a stop sign when you’re positive you came to a complete stop.
Telematics puts the fate of your auto insurance premiums in your hands because, as the driver, you control how you drive and operate your vehicle while on the road. Although this may seem like a huge invasion of privacy, usage-based insurance will help save money on the cost of car insurance premiums. When put like that, isn't a little invasion of privacy worth it to save money? According to State Farm Insurance, using vehicle telematics can help you save up to 25% on the cost of your annual car insurance premiums.
Usage-based auto insurance is a great way for safe drivers to save money on their car insurance premiums, but keep in mind that the opposite is also true. Before installing telematics, be sure you’re comfortable with all the information that will be passed on to your insurance company. If you’re not confident in your good driving habits, telematics may not be the best idea for you.