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If you browse around the Internet for information on auto insurance, you might come across a type of policy that is called a usage-based policy. Have you ever encountered this term and wondered what it is? If so, here are the top things you should know about the usage-based policies offered by some auto insurance companies.

The basic principles

A usage-based policy is one where you pay only for the insurance you use. This might seem weird, but it is becoming a trend in today's insurance market. Basically, you agree to pay a certain rate per every mile you drive. At the end of the month, you multiply the rate by the total miles you drove and you pay that amount. Therefore, your auto insurance bill is different each month, and you have control over the costs of the policy. This type of plan gives drivers an incentive to drive less, as driving less offers a way to cut costs for insurance coverage.

Who would benefit from a usage-based policy?

A usage-based car insurance policy is not something that all drivers should get, but it is a type of policy that is ideal for certain drivers. The main type of driver that would benefit from this option is a driver who drives very little. If a person works from home, for example, or if a person does not go many places, he or she could probably save money by purchasing this type of policy rather than a traditional type. It is always important to analyze how much a policy would cost you if you chose a usage-based option. If you feel you could save some money, than this option might be worthwhile to try.

How companies monitor mileage

If you decide to go with a usage-based policy, you will have to provide a way for the insurance company to track your mileage, and there are several different options. Some companies just require submitting an odometer reading once a month. Other companies use devices that must be installed in vehicles, and there are also companies that track this through phone apps. You would need to ask the company how they track mileage so that you know and understand how it would work for you.

There are currently not a lot of companies that offer these policies, but there are a lot of companies that offer discounts for low mileage. You should ask about this type of discount if you decide to call around for auto insurance quotes. Contact an insurance agency like Kesner Insurance Agency Inc to learn more about your options.