/The New Way to Save on Auto Insurance

The New Way to Save on Auto Insurance

payd at The New Way to Save on Auto Insurance

Can you imagine your auto insurance agent riding shotgun as you cruise around town? Taking notes on your driving habits? It may sound a bit nerve-racking, but that’s the basic idea behind pay-as-you-drive, or PAYD, insurance programs. A device from your car can relay information about your driving habits to your insurance company, and that information helps the carrier calculate a more accurate premium.

There are two types of PAYD programs:

  1. The first type is an insurer-supplied device that plugs into your car’s onboard diagnostics, or OBDII, port and typically reports your car’s mileage, speed, braking and hours of operation.
  2. The second type uses car-manufacturer-designed telematics systems such as OnStar or SYNC. This type typically only reports mileage.

Not your grandma’s car insurance

PAYD programs aren’t yet mainstream, but more and more drivers are opting to use them. Their growing popularity may have something to do with the fact that many providers offer discounts for using them – sometimes as much as 30%. The National Association of Insurance Commissioners predicts that 20% of insurance plans will be PAYD in five years; currently 1% of policies incorporate the technology.

Many top carriers offer PAYD programs, but they all work differently. Perhaps the most well-known PAYD program is Progressive’s Snapshot®, pitched by the ubiquitous Flo. Snapshot is a plug-in device that tracks the time of day you drive, how far you drive, and how often you brake hard. Progressive claims the most conscientious motorists can save as much as 30%. The device must be installed for 30 days to generate a driving profile.

Safeco Insurance’s PAYD program, Rewind®, is a bit different from the rest. Rewind is offered for motorists who are paying higher insurance rates because of traffic tickets or accidents. Safeco’s plug-in device monitors the motorist’s driving for four months. At that point, Safeco may reduce or eliminate the premium increases that came because of the accident or violations.

State Farm, Allstate, The Hartford, Travelers, Esurance, and National General all offer PAYD programs. Discounts vary depending on the carrier, and some programs aren’t available in every state. To see if a program is available in your area, it’s best to speak with a licensed insurance agent.

To PAYD or not to PAYD

So is a PAYD program a good fit for you? If you drive a lot, at the wrong times of the day, and have a bit of a lead foot, then the answer is probably not. However, if you drive very little and very safely, it could be an excellent way to save money.

Usage-based insurance could be a perfect fit for people who work from home and don’t commute. There are a growing number of home businesses, which require different insurance needs. For example, typical homeowners insurance policies don’t fully cover home businesses. A PAYD program fits into this equation because while you may have to get more coverage to cover your business, you can save on auto insurance.  With all PAYD programs, the easiest path to a huge discount is very low annual mileage. The best rates go to customers who drive fewer than 2,500 miles a year.

A PAYD program may or may not be right for you, but one thing is for sure: These programs are gaining momentum and could become a popular alternative to typical insurance policies.

This article was contributed by Samantha Alexander, contributor to the HomeInsurance.com Blog. The HomeownersInsurance.com blog serves as a resource center for insurance consumers and homebuyers across the country.

(Journalist) – Jorge is a Portuguese tech auto journalist and is responsible for our gadgets section. He joined our team in September 2009.