What is pay as you go car insurance?

Car insurance rates can vary dramatically depending on the coverage chosen for the policy however drivers may be able to decrease their premiums significantly with pay-as-you-go car insurance.

Auto insurance companies have begun to focus their advertising on showcasing their specific discounted rates and some providers have introduced a “pay as you go” policy.

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How does pay as you go insurance work?

The name “pay as you go” may be confusing, as these policies work differently than other services with a similar name.

Mostly, pay as you go auto insurance is a policy which reduces your premium if you drive infrequently or follow specific driving behaviors.

The device records how quickly you brake and accelerate, how sharply you take turns, what time of day you generally drive, and your daily mileage.

These findings are then reported to the car insurance company, and the policyholder pays a premium based upon the mileage and behaviors.

What is the logic behind pay as you go car insurance?

The majority of drivers pay for coverage if an accident or another event might occur, but will never need to file a claim.

Because the number of claims the insurance company needs to pay is lower than the number of premiums coming in, the company makes a profit.

Safe drivers pose less risk of needing to file a claim, and are thus more profitable customers for an insurance company; therefore, most companies reward safe drivers with low premiums.

Drivers with a history of accidents or traffic violations are more likely to get into accidents in the future, and thus will be more expensive to insure.

Finally, the pay as you go plan tracks total mileage; statistically, the more someone drives, the more likely they will be involved in an accident just due to the number of opportunities for an accident to occur.

The Additional Money Saving Effect of Pay as You Go Car Insurance

Many companies are implementing some version of pay as you go insurance policies. For example, Progressive has their widely-advertised “Snapshot” discount, and Allstate is offering “Drivewise” in several states.

Pay as you go insurance may not be a smart choice for everyone. If you have a long daily commute to work or travel extensively, the program will probably not provide you with a discount.

If you do choose to try the program, however, most insurance companies will not increase your rates based upon the behaviors they observe, so there is little risk associated with trying the program.

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