Are you overpaying for car insurance? If you are a stickler for safe driving habits and do not use your vehicle for a long daily commute, the answer might be yes. Usage-based insurance is a great opportunity to show your insurance company how low of a risk you are. Thanks to new technologies, paying for car insurance by the mile has never been easier – all you need to do is sign up and start driving.
The best usage-based car insurance
Usage-based insurance first appeared in the 1990s as a policy offering from mainstream auto insurers. Drivers have many more options to choose from these days, including a handful of companies that exclusively sell pay-as-you-go car insurance.
In our search for the best usage-based car insurance, we identified three top carriers. Two are usage-based programs from national auto insurers that primarily sell traditional policies: Nationwide SmartRide and Geico DriveEasy. The third is Root Insurance, a company that was started for the sole purpose of offering usage-based policies.
The most impressive aspect of Nationwide SmartRide is how much your rates can go down through the program. Savings start the moment you sign up with an instant 10 percent discount on your existing Nationwide policy. Based on the results of your driving analysis, you could end up with an additional 30 percent discount.
SmartRide is available as either an app or a separate device you install in your vehicle, making it an option for drivers without smartphones. Whichever option you choose, you will have to complete a four- to six-month program in which Nationwide constantly monitors your driving. You will not receive your discount until this analysis is complete.
The SmartRide program tracks the number of miles you drive and will heavily consider vehicle usage in determining your discount. Particular attention is paid to nighttime driving since you have the highest chance of getting in an accident between the hours of midnight at 5:00 AM. Nationwide notes that they also measure time spent in traffic, so if you don’t pass through congested areas in your daily commute, you are likely to save more. Accelerating too quickly or slamming on the brakes, however, will lose you points.
Launched in 2019, Geico’s DriveEasy was a late arrival compared to similar products from competitors. However, the program has already gained a loyal following due to the savings that many participants earn. According to Geico, drivers who enroll in DriveEasy can have their premiums reduced by up to 25 percent based on how far they commute and their behaviors on the road.
To sign up for DriveEasy, you will need a Geico auto insurance policy and a smartphone. Participation requires downloading the DriveEasy app and keeping it installed on your mobile device as long as you are enrolled in the program. The app can detect when you are driving and logs activities like speed, hard braking and phone use while behind the wheel. Of course, Geico also monitors how much time you spend on the road. The less you drive, the lower your rate.
One unique aspect of DriveEasy is its family sharing function, a feature that is particularly handy for parents to keep an eye on teen drivers. Family members can review each other’s report cards and compete for the best driving score.
Root Insurance is a company that only offers usage-based insurance. This can be advantageous because you do not need to enroll in a standard auto policy before finding out how much you will save. Root allows you to download its app and complete a driving analysis while still covered by your current insurer. After a two- to three-week test drive, you’ll be given a quote that you can compare to your existing rate.
To determine rates, Root examines both your vehicle usage and the habits you exhibit while driving. The latter is particularly important as the company routinely denies coverage to those who fail their test drive. This is advantageous to those who follow the rules of the road. The concept is that having fewer risky drivers in the insurance pool means everyone who is admitted pays less overall.
Root advertises that customers save up to $900 per year by switching from a standard auto insurance policy. Coverage is currently available in 36 states and the District of Columbia, although the company plans to continue expanding.
Car insurance by the mile explained
Traditional driver risk assessment methods used by insurance companies do not take actual behaviors into consideration. Instead, drivers are given an insurance rate that reflects their assumed risk based on certain factors, like their age and credit score. For example, an 18-year-old will generally pay much higher premiums than a 38-year-old if all other details remain unchanged.
With usage-based insurance, companies use technology to learn each driver’s individual habits and give them a more accurate individualized rate. There are generally two methods of doing this:
- Pay-how-you-drive looks at how safe you are behind the wheel to calculate your risk of causing an accident. Programs that use this method might monitor your speed, how quickly you speed up and slow down, and whether you use your phone while driving.
- Pay-per-mile records the number of miles you drive and lets you pay for insurance based on how often you use your vehicle. The fewer miles you drive, the fewer opportunities you have to get in an accident.
Most usage-based car insurance programs use some combination of both methods to get a complete picture of your overall risk as a driver.
Frequently asked questions
How does usage-based insurance work?
Usage-based car insurance is a type of policy that uses technology to track your individual driving habits and determine your rate. These programs usually take two types of factors into consideration: the number of miles you drive and how safe you are on the road.
Can paying for car insurance by the mile lower my rate?
Safe drivers who do not use their car frequently tend to save money with usage-based insurance, however there is not any guarantee that this will be the case. The only way to find out is to complete a test drive and get a quote based on your score.
Do I need to have a smartphone to enroll in pay-as-you-go car insurance?
Most insurance companies require you to download an app to participate in their usage-based program, which means you will need to keep a smartphone in the car with you at all times. Some, like Nationwide SmartRide, do give you the option of installing a small device in your vehicle instead.