How are low mileage discounts and pay-per-mile insurance different?
Low mileage discounts work a lot like any other discount. They're applied to your policy if you qualify, and stay there unless something changes. Insurance companies vary in terms of what they consider low mileage. Some may use under 10,000 miles a year, others require your mileage to be much lower.
Most low mileage discounts are given on a self-reported basis. In other words, you tell the insurance company you don't drive much, and they take your word for it. Some may require photos of the odometer to continue getting the discount.
However, low-mileage programs don't monitor your driving the way pay-per-mile and other usage based programs do. These programs use an app or even a device that plugs into your car to monitor your driving habits and mileage.
It's important to note that there's a difference between true pay-per-mile car insurance and a usage-based program that offers a discount based on driving habits. Some usage-based programs track a lot more than your mileage.
How pay-as-you-drive systems work
Most of the plug-ins operate the same way: You stick the telematics gizmo in your vehicle's diagnostic OBDII port (most cars beginning in 1996 have them) near the steering wheel and it records and reports your driving habits.
The OBDII plug-in devices typically aren't compatible with hybrid or electric cars, and because they recognize your car's VIN they cannot be swapped into another vehicle.
Most of the big insurers, including Progressive, let you test-drive the gizmo for a time (usually a month) before making a decision.
Once data is sent to the insurance company, it's available to you through a website or app, so you can see how specific driving behaviors affect your rates.
You must return the device when you switch insurers, buy a different car or leave the PAYD program. If you don't, you'll have to pay for it. Some companies use an app on your smartphone instead while others combine both a plug-in and an app.
Based on the information the plug-in or app provides, a discount is calculated and applied to your car insurance.
Who can see your driving data?
PAYD devices can do far more than just record mileage. They can measure speed, acceleration, cornering, braking and location, though current plans do not calculate discounts based on GPS data.
State Farm, like other insurers, points to the company website for privacy information. The site offers some details, including that "we do not allow those who are doing business on our behalf to use our customer information for their own marketing purposes."
Progressive's website offers this: "We won't share Snapshot data with a third party unless it's required to service your insurance policy, prevent fraud, perform research or comply with the law. We also won't use Snapshot data to resolve a claim unless you or the registered vehicle owner gives us permission."
Pay-per-mile insurance programs
Since Metromile came out with it's mileage based insurance plans many years ago, other insurance companies have gotten on board. True pay-per mile insurance is available from several companies. Mile Auto is another pay-per-mile company. And big insurance companies have created their own, similar programs.
Allstate and Nationwide also have pay-per-mile programs that differ from their other usage-based plans. True pay-per-mile means that you pay for car insurance based on the actual miles you drive, rather than an estimate. Your other driving habits aren't recorded.
Pay-per-mile programs bill you with a monthly base rate plus a per-mile rate for every mile you actually drive.
How much can you save with pay-as-you-drive plans?
Many companies offer an introductory discount of 5% or more that applies until the incoming data is used to calculate the discount off your next renewal.
Once the data is used to calculate your car insurance discount, the amount can change at each renewal period.
Dave Pratt, general manager of usage-based insurance for Progressive, says the discount through Snapshot could reach 30% or more but adds that a 10-15% is more common. That's about a $150 yearly savings for most customers, according to the company's website.
State Farm says the discount for its In-Drive plug-in could even reach 50%, although that's for near-perfect drivers. The company explains that customers get a 5% discount at sign-up. Another 20% might be trimmed from your premiums if you stay below 12,000 miles a year, the national average.
Some companies, however, including Progressive, will actually increase your rates if the data sent back raises red flags about your driving habits.
How much can you save with low-mileage discounts or pay-per-mile?
Low-mileage discounts vary by company, but they're about 5% on average.
Pay-per-mile plans are trickier to calculate. Because you're billed based on how much you actually drive, the amount you pay will change every month. It's also very difficult to estimate how much you'll pay - or how much you'll save.
However, for people who drive very little, such as retirees or stay-at-home parents. the savings could be significant.
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