Is Pay As You Drive Cheap Car Insurance?


Looking for cheap car insurance? If you don’t put a lot of miles on your car each year, Pay As You Drive may be your ticket to car insurance savings. Also called usage-based, distance-based and per-mile pricing, Pay As You Drive (PAYD) is gaining traction with insurers, whose data indicate that the cost of crash claim rises with the number of annual miles driven. Where available, the Pay As You Go programs can be a real money saver for people who work from home, are currently unemployed or just don’t drive that much.

In California, Pay As You Drive car insurance goes into effect in February 2011. According to an article in the L.A. Times (12.2.10), it will be offered by State Farm and the Automobile Club of Southern California. State Farm’s program, Drive Safe & Save, will provide an initial car insurance discount of 5%. Automobile Club of Southern California claims that its Pay-Drive” program will save policyholders an average of $68 per vehicle. The California Department of Insurance estimates savings on car insurance premiums ranging between 1% to 10%, depending on the actual miles you drive. Other insurers offering usage-based car insurance include Progressive and GMAC Insurance (in conjunction with its OnStar service).  More carriers are certain to follow suit as the insurance regulators in various states approve per-mile car insurance programs. When looking for auto insurance quotes, see be sure to ask if PAYD is available in your state.

Pricing for the different Pay As You Drive car insurance programs tend to fall into one of three models:

  • Mileage Rate Factor – small discounts (typically 5%) are offered if you drive fewer than a set number of miles per year. Mileage is self-reported based on your projected estimates. Adding tiers of mileage and including third-party verification could result in bigger discounts on car insurance under this model.
  • Per-Mile – insurance is sold strictly by the miles driven with other rating factors such as driving record and vehicle insured taken into account when factoring your premium.
  • GPS-Based – your car insurance is priced based on number of miles driven annually, as well as where and when you drive them, and verified by a GPS system installed in your car. The less you drive, the higher your car insurance discount.

Obviously, third-party verification of mileage driven provides the most accurate data, but some people are concerned about the potential invasion of privacy and the misuse of their personal information when the system involves equipment that also tracks where they are driving and at what time of day. If that’s something that worries you, ask your insurer about controls on how data is processed and stored, or get car insurance quotes for a different type of PAYD that doesn’t use GPS-verification.

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