What Is Pay As You Go Car Insurance?
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Paying a flat monthly premium for car insurance may make sense if you’re driving daily, but if you drive less often, a different payment structure might make more sense. Pay as you go car insurance is a popular alternative to traditional insurance, and it can save occasional drivers money every month. But there are some potential downsides to this type of insurance, too, so be sure you understand how it works before you decide if it’s the right choice for you.
Pay as you go auto insurance, also called pay per mile insurance, is designed for drivers who spend minimal time on the road. While traditional car insurance policies often include discounts for low-mileage drivers, pay as you go insurance takes things a step further, offering drivers the ability to pay for insurance only during the times when they’re actually driving.
According to Lemonade, pay as you drive insurance bases your policy on the number of miles you drive each month, so your premiums can change monthly. While the coverage is largely the same as the coverage you’d get from a traditional car insurance policy, the premium calculations are structured differently.
With pay as you drive car insurance, you’ll pay a base price, which is often dependent on factors like your location, your driving history, your car’s value, and the insurance coverage you’ve chosen. In addition to that base price, you’ll also pay a per-mile price that’s calculated based on the number of miles you drive each month. As a result, your monthly payments can vary, but they reflect the amount that you drive.
Let’s say that you have a monthly base rate of $30, and a rate of $0.10 per mile. If you drive 50 miles in a month, you’ll pay $5 in mileage, plus your base rate of $30, for a total premium of $35.
Pay as you go insurance companies track your mileage in one of two ways, according to J.S. Edwards & Sherlock Insurance Agency. Your company may require you to download an app to your smartphone and to keep your phone on you while you drive, or to install a plug-in device in your vehicle. The app or device then monitors your mileage and reports it back to the insurance company monthly.
But it’s important to realize that the app or device can also track other factors, including your driving habits. By tracking your braking habits, acceleration patterns, the time of day that you’re driving, and whether you’re speeding, the app or device can provide the insurance company with additional information on you. If the company determines that you’re a high-risk driver, they might increase your monthly base rate to make up for that risk.
Just like a car insurance company would calculate your insurance premium based on factors like your vehicle’s type and value, your driving record, and your state, insurance companies use those same factors to calculate your base monthly rate for pay as you go insurance.
While you’ll always pay your base rate, even if you don’t drive at all during the month, your actual monthly car insurance costs will depend on how much you drive. You can keep your rates low by minimizing your mileage per day and per month. You’ll also have the benefit of not having to pay for the miles that you don’t drive, which can make this type of car insurance policy an appealing option if you don’t drive far or often.
You can get free, personalized pay as you go car insurance quotes online today to start exploring these insurance programs and to get a sense of what your base rate and per-mile cost might be.
There’s a lot to like about being able to save money with pay as you drive car insurance, but this type of insurance has some downsides, too.
When you sign up for pay as you go auto insurance, you’ll need to be comfortable knowing that technology is continuously monitoring your driving. Some drivers may find that adds extra pressure, and they might feel nervous about the fact that their driving habits are being tracked. Knowing that you’re being tracked can also feel like an invasion of privacy, so think carefully about how you feel about that use of technology.
Drivers with bad or irregular driving habits may experience higher rates because those driving habits are tracked. If you know you don’t have the best habits behind the wheel, or if you often travel at high-risk times, such as driving home from work after midnight, a pay as you go car insurance policy might not be the right fit.
While pay as you use car insurance can save you money on your bills, those monthly bills will all be different and, to a degree, unpredictable. If you have a month where you drive more than you typically do, you’ll need to be prepared to cover a bill that’s higher than average. A traditional car insurance policy may cost more, but you’ll know what your monthly premiums will be.
Pay as you go car insurance is becoming more popular, and the technology used to track mileage is also advancing and becoming more widespread. That means that more car insurance companies are starting to offer pay as you drive car insurance, so you have more options to choose from.
To find the best rate, shop around and compare quotes. You can get free, personalized car insurance quotes online today. As you compare the policies, think carefully about how much you drive a month, how the company will be tracking your driving, what type of coverage is included, and how the company structures its billing and customer service. Just like with a traditional car insurance policy, you’ll want to choose an insurance company that has a strong reputation and that you feel good about working with.
Paige Cerulli Paige Cerulli is a freelance content writer and journalist who specializes in personal finance topics. She graduated from Westfield State University and brings more than a decade of professional writing experience to the ConsumerCoverage team. Paige’s work has appeared in outlets including USA Today, Business Insider, and more.
