What Is Pay-As-You-Go Auto Insurance?

pay-as-you-go auto insurance

Pay-as-you-go auto insurance, also known as usage or mileage-based insurance, is coverage that bases cost on how much you drive. They also base car insurance premiums on a number of miles driven every month. So providers in this area can also factor in when, where, and how you drive.

This kind of auto insurance has long been praised by environmentalists believing that combining awareness, financial incentive, and context are convincing people to drive less.

Another perk of pay-as-you-go insurance is that the market can be better divided, allowing those driving less and more safely to save on auto insurance. Companies can market to these specific drivers and entice them with lower rates. These kinds of drivers include students and female drivers not driving as much and often being unable to pay high rates.

The market for pay-as-you-go insurance is separate from the standard car insurance industry. Most of the providers seen on TV, such as Allstate, Progressive, and Geico don’t offer this form of coverage. MileMeter is likely the most popular provider of pay-as-you-go insurance.

One major drawback of this kind of insurance is the procedural difficulty of enforcement. How can companies know how far you really drove this month? One option is keeping a GPS device in your car, but many people think that is an invasion of privacy. It’s also a major challenge for providers. They take on many risks basing premiums on your current behavior rather than your past profile.

Even if privacy wasn’t a worry, a mileage-based system is restricted to the data at its disposal.

Rather than distinguishing city and highway driving, they likely look at all mileage the same. They also use speeding offenses as their primary metric for dangerous driving, instead of road rage and other behaviors that a simple system like this is unable to see.

Pay-as-you-go auto insurance may be a great idea for someone that doesn’t drive often. It will be much cheaper. However, also more time-consuming.

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