Chapter 8

Many auto insurance companies offer policies that adjust what you pay based on how much you drive or how well you drive. Here are some things to know when deciding if this type of policy is right for you.

1.    Pay-by-the-mile policies

These policies charge you a base amount plus a fee for the number of miles you drive each month. Most companies measure this through a device attached to your car’s computer. If you have an older car without a connection, ask your company if you can take a picture of the car’s odometer instead.

Pay-by-the-mile policies might be good for people who work from home. Some companies offer a cap on the number of miles you drive each day so you don’t get charged too much for the occasional road trip.

2.    Usage-based policies

Usage-based insurance policies also use a device plugged into the car’s computer or a phone app to monitor how you drive. They look at where and when you drive, how fast you go, and your braking and acceleration habits, among other things.

Your insurance company uses that information along with other factors – such as your age, type of car, and driving record – to set your cost.

3.    Is it a good deal?

These types of policies could lower your premium cost if you drive safely or don’t drive a lot. Be sure to get an estimate and compare it to the cost and coverage of your current policy.

• The National Association of Insurance Commissioners Drive Check tool can help you figure out if a usage-based policy could save you money.
  • The Federal Highway Administration says the average car is driven 13,476 miles a year, or 1,123 miles each month. If you usually drive less than that, a pay-by-the-mile policy might be a good choice.

4.    What about my privacy?

Here are some questions to ask when considering these types of policies:

• What device will my insurer use to track my driving? What exactly will be monitored?
  • Do I want my company to have information about my driving?
  • Am I a good driver? Do I think my driving style will help lower my premium cost?
  • How much could I save?
  • Could that information be used after an accident?

For more information, click here.

Teaching Suggestions:

• Ask students if they would consider pay-by-the-mile auto insurance policy. Why or why not?
• Ask students to talk to friends or relatives who might have pay-by-mile insurance policy.  What can you learn from their experience?

Discussion Questions:

1. What type of drivers should consider pay-by-the-mile auto policy?
2. Under what circumstances pay-by-the-mile auto insurance policy could lower your premium?

During the pandemic and at other times, if you drive very little, consider pay-per-mile car insurance to lower your premium. According to the U.S. Department of Transportation, the average American drives about 13,500 miles a year. Insurance companies estimate that a person would likely benefit from pay-per-mile insurance program if they drive less than 8,000 miles annually.

Pay-per-mile insurance may be appropriate for people who work from home, are in college, regularly use public transportation, or who have a second vehicle that is rarely used. This coverage has a base rate, which is determined similar to traditional auto insurance. After that, the per-mile rate is added on. High mileage, aggressive driving, and overnight driving can result in higher auto insurance rates. 

Usage-based insurance programs use telematic technology with an app or in-car device to track your driving. Instead of in-car monitoring systems, some companies require that you submit a photo of your odometer each month.

Another type of usage-based insurance is pay-as-you-drive with rates based on driving habits. With this coverage, rates may increase as a result of bad driving habits. Behaviors that are monitored include hard braking, acceleration and speed, the time of day you drive, mileage, and cellphone use.

For additional information on pay-per-mile car insurance, click here

Teaching Suggestions

• Have students talk with others to learn about their current auto insurance coverage and costs.
• Have students conduct online research for pay-per-mile and pay-as-you-drive auto insurance to obtain additional information on the features, benefits, and drawbacks of these coverages.

Discussion Questions 

1. What features of pay-per-mile car insurance might be appropriate for you or people you know?
2. How might a person reduce the amount paid for auto insurance? 

If you don’t own a car but regularly drive a rental vehicle or another person’s car, consider non-owner car insurance. This coverage provides liability protection to pay for injuries and property damage of others in an accident. Damage to the car you are driving or your injuries are usually not covered. In some states, you may also obtain coverage for uninsured/underinsured motorist protection and medical payment for your injuries. 

Recommended situations for non-owner car insurance include:

• ·         When using a car-sharing service, such as Zipcar or Turo.
• ·         To maintain continuous coverage between selling your car and buying a new one.
• ·         If you frequently rent cars.
• ·        If you frequently borrow other people’s cars, especially if you want a higher level of coverage than that of the vehicle’s owner.
• ·         When obtaining or reinstating a driver’s license, some states require insurance to show “proof of financial responsibility.”

If you frequently borrow a car from someone in your household, non-owner insurance is not recommended.  Instead, you should be included as a covered driver since all driving-age household members may be required to be listed on the policy. If you drive rarely, buy insurance when renting a car or you may be covered on the policy of the person whose car you borrow, if driving with their permission.  

To obtain non-owner car insurance, directly contact an insurance company or agent. Most insurers don’t provide non-owner quotes online. Non-owner car insurance usually has a lower cost than the same liability coverage if you owned a car.

For additional information on non-owner car insurance, click here.

Teaching Suggestions

• Have students contact an insurance agent to obtain rate information for non-owner car insurance.
• Have students create a visual (poster or slide presentation) describing situations in which non-owner car insurance might be appropriate.

Discussion Questions 

1. When might non-owner car insurance be of value to a driver?
2. Describe actions people might take to determine if they have adequate auto insurance coverage.