What is pay as you go car insurance?
Pay-as-you-go car insurance refers to a new type of policy designed to benefit those with erratic driving patterns or those who do not drive enough to justify a standard policy. Standard policies are not appropriate for every situation; it is likely that a person will benefit from a pay-as-you-go policy if he or she does not fit the standard mold of an automobile driver.
Normally, a person who drives 12,000 miles or more per year will benefit from a standard insurance policy. These policies charge the same premium amount no matter how many miles you drive, so if you drive at least the average or more, you are likely to benefit from a “set” rate. However, if you drive less than the average, there is no reason you should have to pay as much as those who drive far more than you.
Pay-as-you-go policies are a good solution for the casual driver
A driver who utilizes pay-as-you-go can enjoy much lower auto insurance rates based on his or her own driving patterns, rather than being forced to pay more for mileage that is never used. Several auto insurance companies have been targeting the pay-as-you-go market with good results. People who do not drive frequently are excited about getting significant discounts for their conservative driving habits, so these programs are becoming more popular and more prevalent in the insurance industry.
Pay-as-you-go policies are administered in several different ways, depending on the company that you choose. Here are a few examples of how pay-as-you-go insurance premiums are calculated:
1) Low Mileage with a Set Point
If you choose a low-mileage policy, you will get your discounts based on a set amount of mileage that you cannot exceed. For example, if your insurance premium is based on 5,000 miles per six-month period, you will lose your discount if you exceed that mileage amount. You could also have a policy that gives graduated discounts based on your actual mileage usage; for example, if you exceed 5,000 miles but not 7,500 miles, you may be qualified for a lesser discount.
2) True “Pay-as-you-Go.”
A true pay-as-you-go policy allows you to pay only for the mileage you use. Many companies offer this service and calculate premiums every six months based on the mileage driven during the past renewal period. This allows the company to price its products in direct relation to how much the customer drives. It is likely that someone driving fewer miles has less risk of an accident, so those customers enjoy lower prices. In these cases, the insurance company often has a complicated formula for figuring how much your insurance premiums increase based on certain mileage increases, so it may be difficult for the average customer to anticipate how much auto insurance premiums will increase given an increase in mileage.
Pay-as-you-go policies require that the customer prove in some way how often they are driving and how many miles they accumulate. There are a couple of common ways to do this:
Physical Mileage Checks
Some policies will require you to drop by your agent’s office for a physical mileage check of the odometer. This may be somewhat inconvenient, but it usually occurs only once every six months and is the easiest way for the agent to see for himself or herself that your mileage is staying low. An alternate method sometimes used is for the customer to report the mileage with random accuracy checks by the agent.
Onboard Electronic Devices
Electronic devices are often attached to a car to measure not only mileage but driving habits, speed, and other factors that may affect a person’s insurance premium prices. Progressive Insurance has a new device that can be attached directly to the dashboard as part of their “Snapshot Driving” program. This device records not only the driver’s mileage but other information and calculates discounts for safe driving practices. Other companies may soon have a similar program as the use of electronic surveillance devices becomes easier with the increase of electronic and “online” devices in newer models of cars.
You should pursue a pay-as-you-go policy if you regularly drive less than the average driver and want to be rewarded for your driving habits. On the other hand, if you routinely drive far less than average due to retirement or health reasons, a straight low-mileage policy may be a better choice for you. Low-mileage policies generally offer lower prices than pay-as-you-go policies, but are only appropriate for those drivers who never exceed a certain level of mileage in their day-to-day driving.