What is Pay as You Go car insurance?

Pay as you go car insurance is when auto insurance companies determine premiums based on how much you use your vehicle and not by a pre-defined range. Pay-and-go auto insurance is offered by several car insurance companies that claim drivers can save up to 50 percent or more on premiums without sacrificing coverage. Pay as you go auto insurance typically requires a tracking device to collect data that the car insurance company uses to evaluate and determine rates.

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Tonya Sisler has a Bachelor’s Degree from the University of South Carolina in Journalism and has worked for 15+ years in management. She has also completed a proofreading certification and is currently a professional writer.

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Brad Larson has been in the insurance industry for more than a dozen years. He started out as a claims adjuster for a national carrier. He has since switched to the agency side of the business. Brad is licensed in all P&C lines.

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Reviewed by Brad Larsen
Licensed Auto Insurance Agent

UPDATED: Nov 17, 2020

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Car insurance companies offer many different types of car insurance, flexible payment options and even custom coverage. While most of the cost of car insurance is based on your driving record how much the vehicle will be used still has a significant impact on premiums.

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Typical drivers have 2 options which include a low mileage car insurance policy and a standard policy. Drivers can chose a low mileage car insurance policy if their estimated annual use of the vehicle is less than 7,500 or 5,000 miles depending on the car insurance company. While the upside is you may save up to 50% or more on premiums the downfall is very few car insurance companies offer low mileage policies. Most drivers simply buy standard coverage which may assume you drive a lot more than you probably do.

What is Pay as you Go Car Insurance?

With the ever expanding number of employees working from home, remote offices and alternative transportation methods there exists an opportunity to provide cheaper car insurance to many drivers without increasing the risk. Pay and go car insurance is a version of this where your car insurance premiums are based on how much you actually use the vehicle and not a pre-defined range most drivers fall into.

Pay as you go car insurance is offered by several car insurance companies who say you can save up to 50% or more on car insurance premiums without sacrificing coverage however it involves a little more work than simply filling out your zip code, reviewing some policy terms and entering your credit card information. Since pay as you go car insurance is based on your individual driving habits car insurance companies who offer this type of coverage want to study your diving habits and record how much the car will be used. Pay as you go policyholders are typically required to install a tracking device to collect data which the car insurance company uses to evaluate the usage of the vehicle and individual driver habits.

Why should I consider Pay as You Go Car Insurance?

The cost of car insurance can not only be expensive but many drivers are often over paying for insurance due to the limited use of the vehicle. If you neighbor is driving 20,000 miles a year and you are driving 5,000 do you really pose the same amount of risk to a car insurance company? Unfortunately the car insurance industry today simply has cut off points and many do not offer discounts to low mileage drivers but with pay as you go car insurance you can certainly take benefit of the lower risk by participating in a car insurance plan based on your actual usage vs. the annual usage insurers assume you will drive.

What are the disadvantages of pay as you go car insurance?

There are several downfalls to pay as you go car insurance including its limited offerings in the marketplace. Not every car insurance company offers pay as you go car insurance and its still only available in a small portion of the country. One of the biggest debates over pay as you go insurance however is the privacy intrusion on policyholders. Not only do the tracking devices installed track your driving habits but there are serious concerns about how this information is used to calculate risk compared to the general population of drivers who never have this data recorded. While the point behind pay as you go car insurance is car insurance based on the amount you drive its this additional information car insurance companies collect which have privacy advocates speaking aloud.

Who should buy Pay as you Go Car Insurance?

Although the benefits of pay as you go car insurance versus a typical low mileage car insurance policy are still up for discussion there are certain drivers who may benefit from purchasing pay as you go coverage. Some of the drivers who fall in this group are:

  • First time drivers who only have limited access to a vehicle. This helps avoid the high cost of car insurance for young drivers yet still provides coverage for times when you want to drive
  • People who work from home and rarely use their vehicle
  • Drivers with multiple vehicles where it makes sense to have a car insurance coverage which reflects the use of a vehicle vs. having to pay the same coverage on an assumption all cars will be used in the same manner
  • Seniors who rarely use their vehicle but still maintain one for recreational and typical chores

Some advocates for pay as you go car insurance also group classic and vintage car owners in the group of people who may benefit from this type of insurance however these owners are probably much better looking at car insurance from a company dedicated to collector car insurance such as the Hagerty Insurance Company. Collector car owners have much greater needs than owners of typical vehicles so its important not to focus only on the cost of car insurance but also the details of your policy coverage.

Who has the Best Pay as You Go Car Insurance Rates?

It’s important to shop around for car insurance no matter what type of car insurance you need. Drivers interested in pay as you go auto insurance need to be even more diligent in their car insurance comparison search as not every provider offers this product and premiums are calculated very differently between the providers who do. Start a search for cheap car insurance quotes today and find a list of car insurance companies who offer pay as you go insurance in your ZIP code.

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