Premiums for car insurance are calculated by combining a variety of factors. For this reason, no two people will actually pay the same premium for their insurance policy, even if they live in the same household. Most people purchase a traditional car insurance policy; however, some insurance companies are turning towards usage based policies.
When a person purchases a traditional car insurance policy, the insurance company will review their individual driving record to see if they have accumulated any traffic violations or have been involved in any motor vehicle accidents. The other major factor when determining car insurance rates is the vehicle itself. Some makes and models of vehicles are targeted more often by thieves or vandals and some are involved in accidents more than others. Other determining factors include the city or area of residence, the use of the vehicle, and the annual mileage. Most insurance companies also offer discounts to drivers if they have more than one vehicle on the same policy, if they have several different types of insurance at the same company, or if they have a clean driving record.
Usage based insurance charges drivers using a different and innovative system. Usage based insurance is sometimes referred to as "pay as you drive". Instead of relying on the past driving history of the policy owner, these types of insurance policies will reflect the current habits of the driver. Premiums are calculated mainly by reviewing the amount of exposure the driver has on the road. Quite simply, the more mileage a person puts on their vehicle, the higher their car insurance rates will be. The insurance company will monitor the vehicle's odometer.
Because this type of insurance relies heavily on the number of miles a person drives, this may deter people from driving unless it is absolutely necessary. This will limit their exposure on the road as well as reduce the possibility of being involved in an accident. This sense of responsibility will help consumers save money. High risk drivers will pay lower premiums as usage based insurance rates drivers on current performance rather than past driving habits.
Some drivers do not agree with usage based insurance because it sometimes involves GPS tracking of vehicles and this can feel like an imposition on a person's privacy. At times, usage based insurance can prove to be inaccurate as it doesn't take into account the type of road the person is driving on.
When deciding what type of car insurance policy to purchase, a person should always weigh their options and discuss them with their insurance agent. An agent should also be able to answer any questions or address any concerns a consumer may have.