Getting car insurance before you get behind the wheel is a requirement in many states. But not all car insurance coverage is created equal. Many traditional car insurance companies have a set of factors that are exclusively used to determine your car insurance premiums. But what if you could get insurance based on how safely you drive or by how much you drive? Using telematics auto insurance you can.
What is telematics auto insurance?
Telematics auto insurance is a unique type of car insurance that uses telematics devices to help determine rates. While traditional car insurers and those that offer telematics insurance may use similar data points when evaluating risk, the use of telematic devices can provide a more accurate picture of your driving behavior and how frequently you drive. In theory, the driver can benefit by lowering costs based on their driving behavior or the number of miles they drive.
There are various types of telematics auto insurance that go by different names including:
- Pay-as-you-drive insurance
- Pay-as-you-go insurance
- Pay-per-mile insurance
- Usage-based insurance
All of these types of telematics insurance may vary a bit and differ by the insurer, but are designed to benefit drivers who drive fewer miles. Instead of a flat rate that doesn’t consider how much you drive, your rate is determined by how much you drive or by the miles you drive.
The National Association of Insurance Commissioners (NAIC) states that “Policyholders tend to think of traditional auto insurance as a fixed cost, assessed annually and usually paid for in lump sums on an annual, semi-annual, or quarterly basis. However, studies show that there is a strong correlation between claim and loss costs and mileage driven, particularly within existing price rating factors (such as class and territory).”
Driving is an activity that is inherently risky with many variables. But with less driving, there’s less risk, and consumers can stand to benefit.
How does telematics auto insurance work?
Telematics auto insurance utilizes telematics devices that collect various data points that insurers use to evaluate risk.
According to the National Association of Insurance Commissioners (NAIC), “Telematics devices measure a number of elements of interest to underwriters: miles driven; time of day; where the vehicle is driven (Global Positioning System or GPS); rapid acceleration; hard braking; hard cornering; and air bag deployment.”
These data points are used and provide a more accurate picture of driving habits. If you’re considered a safe driver or a low-mileage driver, you could save money through telematics insurance.
As part of the tracking, you may need to use a mobile app or specific telematics device to gather the data. The telematics device collects real-time information about how you drive and how much or how long you drive, which can impact your rate.
Pay-per-mile car insurance
Pay-per-mile insurance is one of the main types of telematics car insurance. Instead of a flat car insurance premium, you pay based on the miles you drive. Typically, there’s a base rate charged, and you pay several cents for each mile you drive.
Low-mileage drivers can save money with pay-per-mile car insurance. In theory, if you drive less, there is less risk, and drivers can be rewarded for that.
How much can I save with telematics insurance?
Telematics insurance can be a smart way to save if you’re considered a safe driver and don’t put a ton of miles on your car each year.
For example, at Metromile you’ll pay a consistent monthly base rate that starts at as low as $29/month and pay a rate that could be as low as 6 cents per mile you drive. Let’s assume you drive 450 miles per month. Your monthly car insurance premium would look like:
$29 + (450 x 6¢) = $56
If you’re a low-mileage driver, pay-per-mile insurance can save you money and reward you for driving less. Based on Metromile data*:
- If you drive 10,000 miles, you could save up to $541 per year
- If you drive 6,000 miles, you could save up to $741 per year
- If you drive 2,500 miles, you could save up to $947 per year
Pay-per-mile coverage can be a good fit for students, people who work from home, seniors, and people who are environmentally or budget conscious and prefer to take public transportation or walk or bike places.
If you have a long commute or tend to speed or brake hard or engage in other risky driving behaviors, telematics insurance may not be the best fit.
Why Metromile is a great option for telematics insurance
There are various telematics insurance options, but Metromile is one of the best options for low-mileage drivers. You can use the Ride Along app and drive for 17 days and Metromile will offer the best rate possible, plus 15% off*.
Metromile also offers the following coverage options, so you’re protected no matter what your needs are:
- Comprehensive insurance
- Liability insurance
- Collision insurance
- Uninsured and underinsured insurance
- Personal injury protection (PIP) insurance
- Medical payments insurance
- Roadside assistance
- Rental car insurance
If you’re worried about going over and paying too much, here’s a bonus: any miles you drive over 250 in one day are free (150 for New Jersey).
Filing a claim is also easy using the AI-powered app AVA. In select areas, the Metromile app offers street cleaning reminders in select areas and has a 92% stolen car return rate . Currently, Metromile is available to drivers in Arizona, California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia, and Washington.
The bottom line
Telematics car insurance uses the power of technology to score consumers better, and more accurate rates. Though there are different types of telematics insurance, one type is pay-per-mile coverage where you pay based on the miles you drive. You pay for gas by the gallon, so why not pay for insurance based on the miles you drive? It makes sense and can be a better option for consumers who don’t drive that often. Check out your prospective rate for free and how to get started with Metromile.
*Average annual car insurance savings by new customers surveyed who saved with Metromile in 2018.
Melanie Lockert is a freelance writer, podcast host of the Mental Health and Wealth show, and author of Dear Debt. She’s a cat mom to two jazzy cats, Miles and Thelonious, an amateur boxer, music lover, and needs coffee to function.
*Eligible drivers can save up to 15% on their initial quote with their safe driving in Oregon.