Final answer:
Usage-based or pay-as-you-go auto insurance calculates premiums based on actual vehicle use, tracking driving behavior and mileage. Penalties for not having auto insurance are common and serve to ensure financial responsibility and protect other drivers; however, they can be burdensome for some individuals.
Step-by-step explanation:
Usage-based or pay-as-you-go auto insurance is a type of policy where the premiums are dependent on the vehicle's use. This form of insurance tracks variables such as the number of miles driven, the time of day the vehicle is used, driving behaviors like speed and hard braking, and sometimes, the areas or locations the vehicle is driven in. Tracking devices or smartphone apps are often used to collect this data.
Regarding the penalties for drivers who do not have auto insurance, there are arguments on both sides. Those in favor of penalties may argue that uninsured drivers present a financial risk to others since they may not be able to cover damages in an accident.
Additionally, responsible drivers end up subsidizing the risk by paying higher premiums. On the other hand, some might argue that the cost of insurance can be prohibitive for lower-income individuals.
Nonetheless, the majority of states impose fines, license suspensions, or vehicle impoundments on uninsured drivers to deter driving without insurance and ensure that victims of accidents have recourse for damages.