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Have you been considering making the switch to pay-as-you-go insurance? This type of auto insurance coverage can be a smart choice for certain drivers.
Below, we give you all the information you need to know about pay-as-you-go car insurance. We discuss everything from premiums to coverage options so that you can make the best choice for your driving habits. We also give you our take on some of the nation’s largest insurance companies.
After you read all about pay-as-you-go insurance, check out our free rate comparison tool above. It can provide you with quotes from the best auto insurance companies in the nation.
What is Pay-As-You-Go Insurance?
Pay-as-you-go coverage is usage-based car insurance where your rates are determined by your driving habits. The goal of pay-as-you-go insurance is to encourage motorists to drive less. The less time you spend on the road, the lower your risk is for being involved in an accident. This reduced risk decreases the chances that the insurance provider will need to pay out on your policy.
Generally, insurance providers will use telematics or mobile apps to track your driving behavior. Telematics are devices that plug into your vehicle and document information about your driving habits.
Insurance companies may uses telematics to track:
- Miles traveled
- Braking habits
- Average speed
- Amount of hours you drive
- Time of day you drive
The goal of tracking your driving data is to ensure that you are accurately reporting your driving habits. For instance, if you claim that you only drive 100 miles per week, the telematic device will be able to verify this.
An insurance company will rely on these devices to protect itself from risky or dishonest drivers.
Who Needs Pay-As-You-Go Insurance?
Pay-as-you-go auto insurance is not right for everyone. Typically, the following drivers benefit the most from pay-as-you-go coverage:
- Vehicle owners who work from home
- Shift workers
- Drivers with short commutes
- People who do not drive daily
- Employees with take-home vehicles
- Safe drivers
The drivers described above have habits that are uniquely suited for a pay-as-you-go insurance plan. These drivers are able to use these niche policies to reduce overall costs while still obtaining the proper amount of coverage to protect their vehicles.
The Cost of Pay-As-You-Go Auto Insurance
The billing practices for pay-as-you-go auto insurance coverage are a bit different than those of a traditional policy. The rates for a pay-as-you-go plan will vary depending on the provider and the state you are located in. For example, certain states have higher accident rates, which drives up the average cost of auto insurance.
Most of the time, insurance providers that offer pay-as-you-go coverage will charge clients a base rate. This rate is usually extremely low when compared to a standard six-month policy. However, the provider will usually charge a per-mile fee in addition to the base rate.
Which Companies Offer Pay-As-You-Go Insurance?
Many major insurance providers offer usage-based discounts instead of true pay-as-you-go coverage, which we will discuss in further detail later in this guide. Several companies have emerged that specialize in pay-as-you-go coverage. Two of the most prominent of these are Metromile and Root Auto. When you partner with one of these PAYD (pay-as-you-drive) specialists, you will have access to all of the traditional coverages like bodily injury and uninsured motorist.
Metromile and Root Auto place a heavy focus on reducing the number of miles you drive. Each company typically charges low base rates and adds additional fees based on the number of miles driven. If you are a low-mileage driver, then you will reap the greatest benefits from partnering with one of these companies.
Many of the major insurance companies do not offer pay-as-you-go policies. Instead, the companies offer programs that are centered around usage-based discounts. These programs rely on telematics that analyze your driving habits.
The most popular usage-based discount programs include:
- GEICO DriveEasy
- Progressive Snapshot
- Esurance DriveSense
- Nationwide SmartRide
- Allstate Drivewise
- Safeco RightTrack
- Travelers IntelliDrive
- State Farm Drive Safe & Save
The specifics of each usage-based program listed above will vary from insurer to insurer. It is also important to note that not all of these programs are available in every state. Make sure to ask whether these programs are available in your area when you’re shopping for insurance quotes.
Final Thoughts: Is Pay-As-You-Go Insurance Worth It?
As noted above, pay-as-you-go auto insurance is not right for every driver. However, it can be a great option if you currently pay high insurance premiums and do not drive very much.
If you have a long daily commute, a pay-as-you-go insurance policy may not benefit you. The best way to find out if it will be a benefit is to track your weekly mileage for a few weeks before making a final decision.
Our Recommendations for Auto Insurance
In our industry-wide review, we ranked every major car insurance provider based on the following criteria: cost, coverage, availability, reputation and customer experience. Find out what our experts had to say about two of the nation’s biggest companies below, then check out our free rate comparison tool.
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USAA: Best for Military Families
Our team rated USAA as the Best for Military Families. The company is known for providing exemplary customer service. It also offers some of the best pay-as-you-go coverage options in the nation. The only downside is that USAA coverage is only available to members of the armed forces and their immediate family.
GEICO: Best Overall
Our experts awarded GEICO a score of 9.5 out of 10.0 overall. GEICO provides usage-based discounts through its DriveEasy program. Equally noteworthy are the numerous plan options available, including rideshare coverage and mechanical breakdown insurance.
FAQ: Pay-As-You-Go Insurance
What is pay-per-mile insurance?
Pay-per-mile auto coverage is a specific type of pay-as-you-go insurance where you literally pay by the mile. The fewer miles you drive, the less you pay. These plans are great if you work from home and only drive your vehicle short distances throughout the week.
Does pay-as-you-go insurance require mobile apps or telematics?
Generally, yes. Insurers will often require that you equip your car with telematics or use a mobile app to track mileage and other statistics. The reason for this is that insurance companies want to verify that you are driving as little as you claim.
What’s the difference between pay-as-you-drive insurance and pay-how-you-drive auto insurance?
With all of the different pay-as-you-go insurance variations, things can get a little confusing. Simply put, pay-as-you-drive insurance is a mileage-based program. In contrast, pay-how-you-drive focuses more on your driving habits, such as whether you speed or not.
The Detroit Bureau collects data from every major car insurance provider to formulate rankings of the best insurers. Our in-depth rating system takes into account market share, coverage, pricing, customer satisfaction and ratings from industry experts. Each insurer is given a weighted score in four categories, as well as an overall score out of 10.0.
We recommend auto insurance companies based on these rankings, but we also encourage you to perform your own research and compare quotes to find the best coverage.