Pay-as-you-go car insurance
By Allstate
Last updated: January 0001
Key points
- This insurance is typically based on time spent driving, usually providing a cheaper option for low-mileage or occasional drivers.
- These plans include essential protections like liability, collision and comprehensive.
- Students, remote workers, public transit commuters and people with secondary vehicles can benefit most from this type of insurance.
- Pay-as-you-go insurance could also refer to a type of policy that is not usage-based but has a more flexible payment structure.
Many drivers want flexibility and fairness when it comes to auto insurance policies and how they're priced. One model that's delivering on these two principles is pay-as-you-go car insurance. In this guide, we'll explain what pay-as-you-go car insurance is, how it works and how to determine if it's right for you.
What is pay-as-you-go car insurance?
There isn't one universal definition for pay-as-you-go coverage, but it often refers to a type of usage-based car insurance where your premium largely depends on how many miles you drive. This is unlike traditional policies, where pricing is largely based on your perceived risk. Depending on the insurance carrier, it could also include monitoring your driving behavior. In other words, this type of insurance usually rewards low-mileage drivers who are on the road less, and it could factor in safe driving habits.
Depending on which insurer or website you're looking at, you may see terms like pay-per-mile-insurance, pay-as-you-drive insurance or usage-based insurance used interchangeably with pay-as-you-go car insurance.
It's worth noting that some companies in certain states also use the term to describe a type of policy where you can get coverage for days, weeks or months – turning your coverage off and on as needed. Or, it could mean continuous coverage that is simply broken down into shorter, more manageable payment periods.
Considering that not every insurer defines pay-as-you-go coverage the same way, it's important to clarify how the term is being used to understand the details and limitations of that coverage.
Are pay-as-you-go car insurance policies customizable?
While offerings may vary from insurer to insurer, pay-as-you-go policies generally offer the same kinds of coverage as traditional policies, according to Experian. In other words, there's a good chance you could select the additional coverages or add-ons you're looking for.
How does pay-as-you-go car insurance work?
Assuming pay-as-you-go coverage is being used to mean pay-per-mile coverage, these policies often include a base rate you pay no matter what, explains Car and Driver. Then, insurers may charge a per-mile rate and track how far you drive. The base and per-mile rates are likely determined by many of the same pricing factors as traditional auto insurance (such as the type of car, where you live and your coverage selections). But generally speaking, the less you drive, the less money you'll typically pay.
If the insurer's program uses telematics to monitor driving behavior, your rate could increase in the future depending on if you drive too quickly, brake suddenly or are on the road at certain high-risk times, like after midnight. Or, if you exhibit safe-driving habits, your rate could decrease.
Who is pay-as-you-go car insurance for?
Pay-as-you-go coverage can be a good option for vehicle owners who don't drive often, don't drive far or want to pay a rate that's more transparent and tailored to their driving situation. For example, the following individuals could benefit from a pay-as-you-go insurance policy:
- People who work from home or have a short commute
- Vehicle owners who often take public transit
- Part-time employees, retirees or stay-at-home parents
How much does pay-as-you-go car insurance cost?
Like all insurance policies, the cost of pay-as-you-go coverage is personalized by individual.
Pay-as-you-go policies generally have a base rate and per-mile rate based on factors unique to you like where you live, your driving history and more. The actual amount you pay is largely influenced by the number of miles you drive, which insurers typically track with a telematics device. For example, if you have a base rate around $25 per month and a per-mile rate of about seven cents, you'd pay roughly $95 a month if you drive 1,000 miles. However, if you only drive 500 miles in a month, the cost could drop to around $60.
Pay-as-you-go-car insurance FAQs
If you have a pay-as-you-go car insurance policy and are worried a long trip might negatively affect your premium, that's totally understandable. While there's a good chance you would pay a higher price for the next payment following a trip, many insurers do have a daily mileage cap to prevent premiums from getting too high.
If you drive one of your vehicles regularly, particularly for longer distances, pay-as-you-go coverage might not make sense. However, you can always consult your insurer to compare the pros and cons.
If you have a pay-as-you-go policy, you can save money by driving less or not getting behind the wheel at all. However, as noted before, these policies typically come with a base rate that you have to pay regardless of miles driven.
To count mileage or assess driving behavior, many insurers will send you a telematics device or use a mobile app to track how far you've gone and potentially monitor your driving behavior.