What is Pay-As-You-Go Auto Insurance?

Auto insurance is calculated on a number of factors, including how, when and where you drive. Rates are estimated based on how much you will drive in a given month and at what times of day. If you are driving during highly dangerous times, your insurance costs should, theoretically, be higher. The problem is all of these calculations are theoretical. Until 2009, when a few states and insurance companies thought up the idea of pay-as-you-go insurance.

What is Pay-As-You-Go?

Pay-as-you-go plans monitor how much a driver is actually driving in determining auto insurance rates. Your distance and other factors from the previous month will determine your auto insurance for the next month. This is similar to a pay-as-you-go cell phone plan. Instead of buying a heap of minutes up front and wasting some, people opt to have their minutes tracked and then pay for an estimated usage next month based on the previous month. In theory, auto insurers would gather information on items like when you travel, how far you go, how fast you drive and where you are going. Some estimate that this could be the equivalent of taking millions of drivers off the road in terms of insurance payments. This is because insurance purchasers currently pay for millions of miles they do not use each month.

Who can Use it?

Pay-as-you-go is not approved in every state and not approved by every insurer. Progressive insurance was the first to offer a pay-as-you-go plan, but it was introduced in a minimum amount of states that provided for the option. Many states are still considering whether they will pass the usage of pay-as-you-go plans, and the plans are meeting mixed reviews. On the whole, there is still a long way to go before it is an option for every driver on the road.

What is the Problem?

The main issue people have with this option is how it infringes on the privacy of drivers. Cars have to be outfitted with GPS devices or plug into a system in order for insurance companies to track where they are going. Many users do not want their insurer to be following where they are at any given moment. Aside from basic privacy questions, people fear this could be used as a tool for law enforcement or government agencies. If the information on where you are at any given moment is being recorded and saved, then this information could be used against you in a court of law if it is accessed.

Further, some drivers do not like the idea because they know they have high risk behaviors. Safe drivers have a lot to gain through this method because they usually overpay for insurance. Risky drivers, though, typically underpay their share of insurance costs. If insurance companies find out about this, they will see their premiums increase instead of decrease. On the other hand, some law enforcement officials think this would be a good incentive for safer driving. Ultimately, it is still a highly controversial idea.

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