What is pay-as-you-go car insurance?

Finding the right car insurance to meet your needs can be time-consuming. With so many coverage options available, you may be wondering which car insurance companies can save you the most money. How much coverage do you need if you don’t drive often? What is pay-as-you-go car insurance?

We make finding the right car insurance easy. If you have considered pay-as-you-go car insurance, read on to learn more about this increasingly popular type of coverage. Enter your ZIP code to compare quotes from top car insurance companies.

What is pay-as-you-go car insurance?

There are many coverage options for car insurance, and not every policy is suitable for all drivers. Depending on your situation, there are different programs that car insurance companies offer to help you save money on your policy. 

A pay-as-you-go car insurance policy may offer savings. Pay as you go insurance policies can provide significant discounts compared to traditional car insurance policies.

Pay as you go insurance policies can offer significant discounts compared to traditional car insurance policies.

A pay-as-you-go car insurance policy starts with the insurance company charging you a base or flat rate each month. This base rate is calculated similarly to other car insurance policies. Factors such as your age, gender, driving history, and sometimes your credit score help determine the base rate you’ll pay monthly.

In addition to your base rate, the car insurance company charges you a few cents for every mile driven. Many pay-as-you-go car insurance policies like Metromile have standard caps to your daily driving limit. For Metromile, this is 250 miles in one day (150 miles if you live in New Jersey,) after which you are not charged the per-mile fee. (For more information, read our “One-day Car Insurance Coverage: What To Know“).

How does pay-as-you-go car insurance save money?

Pay as you go car insurance is suitable for drivers who drive fewer than the national average of 10,000 miles per year. Here are a few questions to consider when deciding on pay-as-you-go car insurance.

Read more: The Average Miles Driven Per Year in North America

Are you retired?

Retirees who no longer have to commute to work and spend much of their time around the house may benefit from pay-per-mile car insurance. Pay as you go insurance is beneficial if they have experienced increased rates due to age. Even though the base rate may reflect risk factors such as age, retirees may save in the long run by showing that they are not driving very often.

Do you work from home?

More Americans than ever before are working from home due to the COVID-19 pandemic. Home office workers typically only communicate a few feet within their home. If they prefer not to drive often outside of a typical commute, pay-as-you-go car insurance may be a money-saving option.

Do you take public transport?

City dwellers may also benefit from pay-as-you-go car insurance. People who live in large metropolitan areas such as New York or San Francisco are likely to use public transport instead of driving. Public transportation in large cities can save drivers time and money since it is widely available and affordable. Furthermore, traffic in these areas can be prohibitively slow, persuading drivers to take the bus or train instead.

Do you own multiple vehicles?

Pay as you go car insurance may also be an ideal option for individuals who own multiple cars. Some people may have leisure or backup cars that they rarely drive. Pay-as-you-go car insurance allows you to only pay for the miles you put on your extra vehicle instead of a full coverage policy. If you only drive your backup vehicle a few times a year, this is a great reason to use pay-as-you-go car insurance.

When should you steer clear of pay-per-mile car insurance?

Pay as you go car insurance is not cheaper for everyone. If you find that you drive more than the average 10,000 miles per year, or if you’re prone to making many cross-country road trips, then this might not be the best option for you. 

These policies often have daily mileage caps that spare you from hefty charges for one-off long drives. Still, when you sign up for a pay-as-you-go policy, you typically provide an estimate of what your annual mileage will be. Suppose you consistently drive more than your initial estimate. In that case, you could incur penalties on your car insurance rates or be dropped from coverage altogether. 

Pay-as-you-go car insurance is also not available everywhere, and it is only available through a few car insurance companies, but the list is ever-growing. In the United States, Allstate Milewise, and Nationwide SmartMiles are the pay-as-you-go car insurance options available in most areas, with Metromile offering in a few states.

Pay as you go car insurance may not be the best option if you need more comprehensive coverage. Pay as you go car insurance policies often offer state minimum coverage since the risk of collision is lower.

The entire point of pay-as-you-go auto insurance is to prove to the car insurance company that you are less likely to need to file a claim. Minimizing the amount of time spent driving reduces your risk of a collision and pay-as-you-go car insurance policies consider this.

How does pay-per-mile car insurance work? 

Customers have many car insurance questions regarding how pay-as-you-go insurance works. Pay-per-mile car insurance policies sometimes use telematics devices to determine your monthly mileage. Telematics devices are most commonly known for their association with safe driving car insurance discounts.

Telematics devices typically plug into your car’s On-Board Diagnostics (OBD) port. The instrument tracks your driving behavior like acceleration, speed, smoothness, and abrupt stops. Telematics devices also track what time you drive and how often you drive in inclement weather. These are all behaviors and situations associated with a higher risk of collision. The car insurance company uses this data to assess if a driver poses an increased risk for insurance claims. 

Some of these factors are out of your control. Consider if you often drive at night, work in a position requiring you to travel long distances, or live in an area where inclement weather is typical. In these situations, safe driving rewards programs may not be a good fit for you. Not all pay-as-you-go car insurance policies use telematics devices to track driving behavior. Some exclusively use these black boxes to track your mileage.

Consider if you often drive at night, work in a position requiring you to travel long distances, or live in an area where inclement weather is typical. In these situations, safe driving rewards programs may not be a good fit for you.

There are auto insurance companies that offer good driver discounts using telematics devices. These discounts and rewards are often applied when the driver renews their policy. Sometimes an insurance company may use telematics devices for a one-time promotion. In this case, you would use a telematics device for a certain amount of time and then return it to the insurance company. A professional will then evaluate your driving behavior and risk and apply your rewards for safe driving.

Not all pay-as-you-go car insurance policies use telematics to track your driving behavior. You typically do not see your rates increase based on unsafe driving behavior when they do. Instead, you are rewarded when you drive safely. 

While many rewards programs also refrain from increasing rates for reckless driving, this is not always the case. Some safe driving rewards programs will use telematics device data to determine if you are a higher risk driver than they initially thought. In these circumstances, it is doubly vital to drive safely and responsibly when you have a telematics device.

How can pay as you go insurance benefit you?

Pay-as-you-go car insurance policies can also save money for drivers already in high-risk categories such as young drivers. Car insurance companies often determine high-risk drivers using factors such as age and gender. 

Even though these factors will still impact your monthly base rate, you can save in the long run by showing that you are at a lower risk because you don’t drive as often. Being behind the wheel less inherently reduces the chances that you will be in a collision. 

If your car insurance policy includes a telematics device, then you can prove directly to your insurance company that you are a safe driver. Your car insurance company may help you save money for safe driving despite being in a high-risk category.

Is pay-as-you-go car insurance the right option for you?

Finding the best deal on car insurance can be challenging. If you don’t drive often, you are probably frustrated by paying the same high monthly rates as a frequent driver. After checking out this guide, you should have a better answer to your question, “What is pay-as-you-go car insurance?” To compare car insurance quotes in your area and see if you can save with a pay-per-mile plan, enter your ZIP code and get the right coverage for you.