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What Is Pay-as-you-go Car Insurance?

Last Updated on December 17, 2023 by a2z_admin

 

Pay-as-you-go car insurance is a type of insurance where the cost is determined by how often and how far you drive, rather than predictions made by the insurance company about your driving habits. If you spend less time on the road, you’ll pay less for your insurance. It’s a good choice for people who don’t drive a lot but still want to make sure they’re protected.

With pay-as-you-go auto insurance, the key factor is how you actually drive. Instead of looking at statistics like your age, the type of car you have, and general driving patterns, the insurance company creates your policy based on your specific driving behavior. This way, your premiums are directly linked to how much and how well you drive.

Who Can Benefit from Pay-as-you-go Car Insurance?

There are two types of pay-as-you-go car insurance: pay-as-you-drive and pay-per-mile. These options are designed to be fairer and
more personalized based on how you drive. Let’s break down who might benefit from each:

Pay-as-you-drive car insurance: This type of insurance is great for folks who make safe driving a priority. If you stick to speed limits and avoid hard braking, you can enjoy lower premiums. The idea is simple – safer driving equals lower costs. So, if you’re someone who follows the rules of the road and takes it easy behind the wheel, pay-as-you-drive insurance could be a good fit for you.

Pay-per-mile insurance: Now, pay-per-mile insurance is a bit different. It looks at how much you actually drive. Here’s how it works: The insurance company considers things like your age, driving history, insurance claims history, the type of car you have, and where you live. These factors help determine a base rate. This rate is influenced by how similar drivers behave, and it might change from one year to the next.

Once they have this base rate, they calculate your per-mile rate. Let’s take Metromile as an example. They start with a base coverage cost of $29 per month. Then, they add a few cents for each mile you drive in a month.

Which Companies Provide Pay-as-you-go Car Insurance?

Some insurance companies specialize in a type of car insurance called pay-as-you-go, where you only pay for the insurance you use. Many big insurance companies offer this kind of insurance alongside their regular options.

  •  Metromile: Metromile is a company that focuses only on pay-as-you-go or pay-how-you-drive insurance. They offer policies in eight states: Arizona, California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia, and Washington. Additionally, Metromile sells its technology to other insurance companies, so you might find similar benefits with your current insurer.
  • Mile Auto: Mile Auto uses an app that tracks your mileage and charges you based on the base rate plus the miles you drive. This option is available in Oregon, Illinois, and Georgia.
  • Nationwide SmartMiles: SmartMiles, provided by Nationwide, is available in forty different states. It gives you the same coverage as a regular policy but with a flexible monthly rate based on how many miles you drive.
  • Allstate Milewise: Allstate’s Milewise program is offered in 12 states and the District of Columbia.
  • Root Insurance Co.: Root Insurance offers usage-based insurance that depends on how you drive. To get started, you take a two to three-week test drive using their mobile app. Root then figures out your rate and either sends you a quote or decides not to cover you based on your driving behavior.

The app continues to track your driving habits for six months. When it’s time to renew your policy, your rates may change based on how you’ve been driving. Root doesn’t have insurance agents, and all their policies are available online. You can even file a claim through their app. Currently, Root is available in 28 states with plans to expand to more states soon.

Benefits of Pay-As-You-Drive Car Insurance

One great thing about pay-as-you-drive car insurance is that you get to decide how much you pay each month. Let’s take Metromile as an example.

They start at $29 a month, and then you add on only $0.06 for every mile you drive. If you drive around 500 miles in a month, that means your monthly cost is just $59. That’s like paying half of what most people across the country pay, which is around $117.

This is super helpful for careful drivers who don’t hit the road too often. You could end up saving $600 or even more every year. With pay-as-you-drive insurance, you’re the boss of your monthly car insurance bill, and you get to decide how much you want to pay.

Companies Offering Pay-as-you-go Discounts

  • Progressive : Progressive has a program called Snapshot that tailors your car insurance rates based on how you drive. You can use Progressive’s app or a plug-in device to show them your driving habits. Try it out for 30 days to see if it suits you.
  • Esurance : Esurance has a pay-as-you-go policy called DriveSense, available in 18 states. You can use either a mobile app or a plug-in device to keep an eye on your driving habits.
  • Nationwide :  Nationwide’s SmartRide pay-as-you-go program uses a plug-in device to watch how you drive. Use the device for one policy period, and the recorded statistics set your premium and safe driving discount. This program is exclusive to current Nationwide customers, and once your rate is set, it stays the same.
  • Allstate : Allstate’s Drivewise tracks your driving habits through its app. They reward drivers who stay under 80 mph, limit late-night driving, and avoid hard braking with discounts.
  • Safeco : Safeco’s RightTrack offers discounts to current customers who join the program. Just signing up gets you an initial discount, and then they send you a plug-in device to track how you drive.
  • Travelers :Travelers’ IntelliDrive is a pay-as-you-go program with a 90-day trial. It uses a mobile app to monitor your driving habits. If you drive safely, you can get up to a 20 percent discount. But be aware, if you drive recklessly, your premium might go up. So, think about your driving style before joining.
    State Farm : State Farm’s Drive Safe & Save is a pay-as-you-go program. Drivers download a mobile app to track habits like speeding, hard braking, and quick accelerations, as well as the distance you drive. Safe drivers can save up to 30 percent on their premiums. 

Understanding Pay-As-You-Go Auto Insurance Costs

How you pay for pay-as-you-go car insurance is a bit different than the regular kind. The amount you pay depends on the company and where you live. Some places have more accidents, so insurance costs more there.

Usually, companies offering pay-as-you-go insurance have a basic charge, which is usually way lower than a regular six-month insurance plan.

But, they also add an extra fee for each mile you drive on top of the basic charge.

Is Pay-As-You-Go Insurance Worth it?

In simple terms, pay-as-you-go car insurance might not be the best fit for everyone. It works well for those who don’t drive a lot and want to save money, especially if they currently pay a lot for insurance.

If you spend a long time driving every day, this type of insurance might not be the right choice for you. The smart thing to do is to check how much you drive each week for a few weeks before deciding if this kind of insurance will actually help you save money.

Here Is A List Of Important FAQS
Insurance companies often use devices plugged into your car’s OBD-II port or mobile apps to track mileage for pay-as-you-go insurance.
One downside could be that if you drive more than expected, your premiums might end up higher than with a traditional insurance plan.
If you drive less than you estimated, you may be eligible for a refund or a lower premium during the next renewal period.

Not all insurance companies provide pay-as-you-go options. It’s essential to research and find companies that offer this specific type of coverage.

Switching to pay-as-you-go insurance usually depends on your current policy terms. Check with your insurance provider to understand if and when you can make the switch.

About the Author

Alex Huber is a content writer for Atoz Insurances and he is a very experienced and well-rounded freelance content writer who specializes in the insurance and finance niches. His writing is engaging and informative, and he has a strong understanding of the industries he writes about.

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