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Mileage-Based Car Insurance Coming to California


California has recently made it legal for car insurance companies to offer policies based on the exact number of miles a customer drives every year. Several insurance companies had already begun testing programs across the country, with mixed responses from consumers. Some customers enjoy the savings from the plans, while others worry about the possible invasion of privacy that could come from an insurance company tracking every mile that you drive.

Traditional Insurance Overpayment

With a traditional insurance policy, two drivers with similar demographics would usually pay the same rate regardless of their driving habits. As long as your mileage was within a broad category, your insurance rates would not vary depending on how far you drive to work each day. It is possible that someone who only drives a few miles each day could pay similar rates as someone who drives twice as many miles on a regular basis. Insurance companies have developed a new system that allows drivers who drive less to benefit from lower rates based on their actual mileage.

Mileage has Always Been Considered

Insurance companies have always kept track of the amount of driving their customers do on a regular basis. Rates can fluctuate based on the number of miles a person drives each year on average. Where and when the person drives is also taken into consideration. Previously, though, mileage was factored in very general terms through a tiered system. The new mileage-based insurance policies are far more precise than the older policies. Customers are charged based on their actual miles driven rather than on an estimation of their usual mileage.

Risks Assessed by Reported Mileage

Some companies, like State Farm, would allow customers to report their mileage each time they renew their insurance policy at the end of the year. As the mileage usage is reduced, the insurance rates would also be reduced. This system is less specific than other pay as you go systems, but it does offer some relief for drivers who find ways to reduce their time on the road. State Farm offers a specific mileage discount every time a customer shaves 500 miles from their regular annual mileage totals. The goal is to provide a concrete link between insurance rates and real mileage totals.

Electronic Tracking Devices

State Farm also has an agreement with OnStar that will allow them to track the actual miles you drive through a satellite system. Many other insurance companies that offer pay as you drive policies require that you install a small electronic device underneath your steering wheel. This device keeps track of every mile that you drive as you go, so that you don't have to worry about filing a report with your insurance company at regular intervals. The device also tracks what time of day you are driving, which could affect your insurance rates as well. Driving in the middle of the night, for example, is considered more risky than driving in the middle of the day.

Fuel Prices Lead to Less Driving

Many Americans have cut back on their driving because of rising fuel costs. The mileage-based car insurance policy fits that trend nicely, offering a reward for finding alternatives to driving. Customers who were already driving less and still paying the same amount for their car insurance could realize nice financial benefits from the mileage-based insurance policies without making any substantial changes to their already reduced driving habits. These drivers would save more on fuel costs and save more on their car insurance at the same time.

Devices Track More than Mileage

The steering wheel devices that track mileage also track other driving data. They can report how fast you drive, when you apply the brakes too quickly, and many other details that provide a much clearer understanding of your driving habits. When a tracking device is installed, your insurance rates are based on more than just the number of miles you drive. Risky driving behavior will be logged as well, which could cause your insurance rates to rise based on your style of driving. This built in financial conscience for your car might help you slow down and stay safer if you remember that your driving habits are directly related to your insurance rates.

Some customers worry that this detailed tracking device is an invasion of privacy. They feel that the insurance company should not have the right to detailed information about how they drive, when they drive, and where they drive. Insurance companies argue that any driver can still purchase a traditional insurance policy that does not require the use of a tracking device. In order to take advantage of the possible savings involved in a mileage-based insurance policy, however, the tracking device is necessary.

You Control Your Costs

Mileage-based insurance policies give you complete control of your insurance costs. If you want to keep your rates lower, you simply avoid driving. Staying out of the car saves you money. Driving in a steady and stable manner will also keep your rates down. If you know that you need to drive further during a certain month, you can budget for the increase in rates that you will experience at the end of the billing cycle. Instead of paying a standard insurance rate, you can adjust your rates by adjusting your driving habits.

Track Your Driving Profile Online

Since your driving habits are being collected by your insurance company through a tracking device, you might find it interesting to see what your driving profile looks like. Most insurance companies offer a website where you can see what your mileage device is reporting about you. This is a great way to gauge the overall safety of your driving habits and make adjustments. It is also a nice way to keep track of teenagers who may be borrowing the family car. If you notice erratic driving, you can talk to your teen about it before there is an accident. You can see exactly how the car is being driven at all times.