The cost of living is a major concern for the majority of people right now. Inflation has escalated dramatically and led to the housing market slowing down. Food prices keep rising, and fuel costs jumped by 48.7% between June 2021 and June 2022.
Running a vehicle can be a costly affair, and the value of cars also rose last year. Used cars went up by over 16%, while new car prices shot up by 12.6%. Car prices in the US and UK are just above the world’s average, but while they aren’t the most expensive places to buy an automobile, they do have high insurance costs.
Running a vehicle is a necessity for countless families and individuals. Shopping, school runs, and commuting is unavoidable for most people. And for some, their car represents their livelihood. Unfortunately, as inflation stays high, car ownership has become more expensive.
The UK is the 4th most expensive country to own a car, and the US is the 10th. A considerable part of this cost is through insurance premiums. But, what if there was a way to save money there?
How does usage-based insurance differ from other types of protection?
Insurance companies have to calculate the cost of an insurance policy for vehicles before they can offer a customer any form of protection. To do this, they look at several factors that can help to establish what kind of risk you pose.
There are a number of different critical metrics used by insurers including frequency. Car collisions are listed as high frequency due to the number of payouts to customers each year. Other factors that will be taken into account consist of your age, where you live, number of years driving, previous claims, and occupation.
Usage-based insurance goes further though and looks at how you drive when you take to the roads. When you walk into an insurance broker’s office, the agent you deal with will have no way to tell if you are a safe driver beyond using their standard criteria.
A usage-based program supplies insurers with data about your driving that directly influences how they set the price for your yearly policy.
Is usage-based insurance aimed at a specific set of drivers?
Almost anyone could ask for usage-based insurance for the vehicle cover. But, there are specific programs tailored toward certain types of drivers. For instance, there is pay as you go food delivery insurance for people working in this sector, and there are policies designed for Uber drivers too.
If you utilize your vehicle for work then you need more than standard personal car insurance. However, you could benefit from usage-based insurance whether you use your car for recreational purposes, to deliver pizza or transport passengers around town.
How can you save money by using usage-based insurance?
This type of insurance program lets the policyholder take more responsibility over what they will be charged the following year if they renew. Though, insurance providers differ in how they operate usage-based programs. Some will evaluate drivers for 4 months, and others for 6 before they adjust the insurance costs.
Taking out car insurance based on your usage means you have the chance to prove you are a good driver and less likely to be involved in an incident and make a claim.
Demonstrate safer driving behavior
When you are enrolled in this type of insurance program, how you drive will be monitored closely. Telematics is used to send data to servers that will store your driving information to be analyzed by the insurance provider. This can be achieved through smartphone apps, or onboard devices.
Regardless of what device or app you use, specific data will be collected regarding how you drive.
- Acceleration
- Braking
- Location
- Distance
- Speed
- Cornering
- Mobile phone usage
- Hours driving
Telematics allows an insurer to see directly how you act when you get behind the wheel. Harsh braking, sudden acceleration, speeding, and long hours of driving, can be seen as indicators that you are a higher-risk driver.
But, if you demonstrate acceptable driving behavior then you can benefit from paying less for your insurance.
It will help you to improve as a driver
While some people don’t relish the naming and shaming part of usage-based insurance, your driving data is confidential. You can make improvements to your driving by taking into account the reports you will receive from your app.
If you look at areas you need to work on, you will hopefully improve as a driver, and then get the same financial benefits as safe drivers do.
Lower maintenance and repair costs
Driving takes a toll on any vehicle over time. The way you drive will directly affect how often you need to make repairs or maintain your vehicle.
Actions such as going over potholes at too high a speed can cause problems with tracking and damage wheels. Accelerating in high gears puts strain on the engine, and constant harsh braking will wear out your pads quicker.
By using the feedback given to you through the usage-based insurance program you will treat your car better and save money on repairs and replacement parts.
Making and sticking to a budget can be difficult, especially in this current economy. If you are driving many hours a day for work you will have to factor maintenance into your budget. Usage-based insurance could help you to stick to this and lower your outgoings.
Is usage-based insurance a better option cost-wise than standard protection?
Not everyone is keen on having their flaws pointed out but if you are happy to give an insight into your driving habits to your insurer then you might find usage-based insurance a better option.
The cover you receive will be identical to standard car insurance protection, but good drivers benefit more. Everyone wants to find ways to make money go further, and this vehicle insurance gives you the chance to cut costs just by driving more carefully.
The main purpose of usage-based insurance is to provide a more accurate way to set costs for the customer and let the insurer get a better picture of who represents a high risk. But, one side benefit is that there is scope for continual improvement which should see safer roads.
Are there privacy worries with the use of telematics?
There are ongoing worries over data control, especially with more information being stored on servers and transmitted through the net. Consumers put data privacy as their main concern regularly on studies and polls, and this has impacted usage-based insurance to a degree.
Whether you wish to share your driving behavior data is a personal choice unless you are under contract and monitored by your employer. Some people are not keen on the idea of a big-brother scenario, but the potential gains from safer roads and lower insurance costs have to be taken into consideration also.
Summary
Cutting costs has become crucial for many people today, and 2023 doesn’t look like it will be any easier. Usage-based insurance will not benefit anyone who drives erratically at first, but it could help them to drive more safely.
Anyone who can display good driving behavior is likely to see insurance savings if they are consistent, and use a usage-based program.
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