"Pay As You Go" Auto Insurance Guide

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"Pay As You Go" Auto Insurance Guide

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Pay as you go car insurance, also known as per-mile or mileage-based insurance, offers the same coverage as traditional car insurance, but may offer a less expensive option for those who don't drive very often. Features of pay as you go car insurance are:

  • Pay as you go car insurance is based on your driving habits. 

  • Pay as you go car insurance does not rely only on uncontrollable factors like your age to determine rates.

  • One type of pay as you go car insurance is pay per mile car insurance.

  • Another type of pay as you go car insurance is pay per hour which is based on the number of hours you drive rather than the distance you drive.

How Does Pay As You Go Car Insurance Work?

With a pay as you go car insurance plan, you are charged both a base rate, either daily or monthly and a per-mile rate, rather than a monthly or yearly premium.

  • Your per-mile rate is generally monitored by telematics. Telematics uses a combination of GPS and onboard diagnostics to determine where a car is, how far it's traveling, and how well its functioning internally. Is the engine running well, how about the exhaust system?

  • It also tracks the way you use your car. Do you slam on the brakes or put the pedal to the metal? If so, your premiums will likely go up under pay as you go car insurance policies. However, if you practice defensive driving and use caution with both braking and accelerating, your rates will likely go down under usage-based policies.

Who Benefits from Pay As You Go Car Insurance?

There are a number of people who may benefit from a pay per mile policy, as well as some unexpected advantages. Take a look below to see if pay as you go car insurance is a good option for your needs.

  • People who work from home or who have short commutes.

  • People who use public transportation or rideshares more often than they drive. This is common in big cities like New York City or Chicago.

  • Retirees who don't drive often.

  • People who have leased cars that put tight restrictions on annual mileage. Some leases max out at 10-15,000 miles per year in determining whether fees will increase.

  • People with teenage drivers can use the telematics device as a learning tool by showing them where there's room for improvement or how well they're doing. This is useful for parents as they navigate car ownership and responsible driving for their kids.

  • People with driving convictions on their record may find this policy more affordable than a conventional policy. Conventional policies often increase premiums based on poor driving records. 

Is Pay As You Go Car Insurance Cheaper? That Depends.

Pay as you go car insurance is not cheaper for everyone but can benefit those who don't drive often. It also has advantages for those who drive at hours with less traffic congestion.

  • Pay as you go car insurance gives you the chance to earn discounts if you drive in off-peak hours like very early mornings. Insurance companies are taking into account research around 

  • Driving at a reduced mileage is another way to save money with pay per mile insurance.

  • Allstate's Drivewise clients receive a discount of 3% when they opt into using the app. After your first 50 trips, you'll receive an additional 15% back from your policy fee. You'll also receive this return every six months you drive safely after that.

  •  In most states where Progressive's Snapshot Program is available, just using the app provides an automatic discount. You could also receive additional discounts at renewal time depending on your results.

Common Features of Per Mile Insurance

Pay per mile insurance plans contain primarily the same features as other auto insurance plans. In fact, all fifty states have laws and regulations regarding the level of insurance coverage that vehicle owners must possess. Expect to find liability, comprehensive, and collision coverage plus other opt-in features such as roadside assistance or uninsured motorist coverage. Read your plan carefully to determine what is included.

  • Liability Coverage - If you are in an accident and you cause damage to another person's vehicle or their property, liability insurance is used to pay for this damage. If an accident is determined to be your fault, then liability insurance is incredibly important. Liability insurance does not cover damage to your own vehicle or property. Be sure to check your state's laws to determine the amount of liability coverage you are required to have. 

  • Comprehensive Coverage - Comprehensive coverage refers to the coverage that you have for incidents that are outside of your control and do not involve vehicle accidents. Incidents could include: if your vehicle is stolen, if you hit an animal causing damage to your vehicle, or an act of weather(think a broken windshield due to hail). Comprehensive coverage is not always required, but expect to have to opt into comprehensive coverage when you have a lien on your vehicle. 

  • Collision Coverage - Collision coverage is just what it sounds like. Unlike liability insurance which only pays for damage you cause to the property of others, collision coverage pays for damage to your own vehicle. If the insurance company determines that the cost of fixing your vehicle is greater than the cost of replacing our vehicle, also known as your vehicle being "totaled," then your insurance company will typically reimburse you the value of your vehicle.  Like comprehensive coverage, collision coverage is typically required if you have a lien on your vehicle. 

  • Personal Injury Protection - If you are in an accident and suffer an injury, or other passengers in your vehicle are injured, this is where Personal Injury Protection comes to the rescue. PIP coverage will help pay for medical bills and other expenses that are incurred(such as if you or another passenger miss out on work due to injury). 

  • Uninsured Motorist Coverage - While it would be great if no one got behind the wheel of a car without car insurance, unfortunately, it does happen. Uninsured Motorist Coverage is there to fill in the gaps and help you with expenses incurred if you are in an accident with someone who is uninsured or underinsured and are determined to be at fault. 

Who Sells Pay As You Go Car Insurance?

Usage-based insurance is not available in every state. Additionally, only some car insurance companies offer the service. Let Policy Scout help you find the right pay as you go car insurance company for your needs. two companies that offer the service are Allstate and Progressive.

  • Allstate offers Drivewise 

  • Progressive's Snapshot Program is a usage-based plan as well. 

  • Esurance also offers a pay as you go program called DriveSense. Adding the Drivesense monitor does not require you to sign up for the company's insurance but the business encourages you to explore your options there.

How Do You Apply for Pay as You Go Insurance?

You need to meet certain eligibility requirements to get approved for pay per mile insurance as with any other policy. PolicyScout can guide you through the application process. No matter what kind of insurance you apply for, you'll need certain items to complete the application. In most cases, these include your:

  • Driver's license. This is used for identification purposes. It's also necessary if you are the primary driver on the car insurance policy.

  • Vehicle registration. While you don't necessarily need a vehicle registration to insure a car, some states, like Colorado, do. Also, you cannot register a car without insurance in most states.

  • Voided check. A voided check helps you set up auto-payment for your policy. Many insurance providers offer discounts for doing so.

  • And, if you have existing coverage, your current insurance policy's declaration page. The declaration page offers critical information about you and your policy. It includes your name, your address, your policy number, the year, make, model, and vehicle identification number (VIN) for the car. It also has the length and effective dates of the policy, your driving history like how many tickets, accidents, etc. you've had, and your average annual mileage.

Is Pay As You Go Car Insurance Right for You?

  • If you drive less than 25 miles per day you might want to consider pay as you go car insurance.

  • If you drive the same distance or more than the average driver does per year, pay per mile car insurance is unlikely to suit your needs.

  • Do you want to help teach a teen driver safe driving techniques? Pay as you go car insurance can help.

  • Do you have driving convictions on your record like multiple speeding tickets or accidents where you were at fault? Pay per mile car insurance might offer you lower prices than other, more conventional policies. 

Do Auto Insurance Companies Have Similar Discount Programs?

Regardless of your choice to pursue either pay per mile car insurance or a discount program through a more conventional auto insurance policy, you'll want to understand the basics of each type. Examples of insurance coverage options are comprehensive, collision, liability, and a combination of all of the above. Once you understand the basics of policy coverage options, then you will have a better understanding of what the discount programs they're offering entail.

  • Low-mileage discounts differ from pay as you go car insurance is that they are a small discount typically paid at the end of the year.

  • Safe driver discounts, like pay as you go car insurance, acknowledge good driving. For instance, many of these programs give drivers a refund if they don't have any accidents or don't receive tickets when they drive. This is often at certain intervals like per month, per quarter, or per year. They do not, however, monitor braking and lead-footing the same way that pay as you go car insurance does.

  • Some other discounts are provided based on career paths like discounts for teachers or members of the military.

  • Multi-driver discounts or 

     are other options from many insurance providers.

PolicyScout offers advice on which insurance policies to consider. Give us a call today.

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