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Pay-As-You-Go Car Insurance Approved in California

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Joel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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Two car insurance companies got the green light to offer pay-as-you-go car insurance in California, a first for the Golden State.

California Insurance Commissioner Steve Poizner announced Thursday that he had approved filings by the Automobile Club of Southern California and State Farm Mutual Auto Insurance to offer such programs.

They are intended to reward drivers who voluntarily drive fewer miles by offering them lower car insurance rates – State Farm estimates customers will save $31 million with the new program, while Auto Club estimates $68 in savings per vehicle for participating drivers.

Beginning on February 28, 2011, State Farm customers will be able to enroll in the “Drive Safe & Save™” program.

Those who agree to self-report their odometer readings at the beginning and end of each policy period, or agree to allow State Farm to access their mileage data automatically when the insured’s vehicle has an active On Star system, will be offered an initial 5% discount for the first policy term.

The “Automobile Club of Southern California’s Pay-Drive program” will be made available to insured drivers on February 1, 2011, with rates one to 10.5% lower than those insured in the same “mileage band” who simply estimate their mileage.

How does Pay-As-You-Go car insurance work?

Basically, this type of car insurance allows those who drive relatively fewer miles than the average commuter (retirees and college students for example) to save money on their car insurance premium.

Drivers essentially pay for a minimum amount of insurance, perhaps 6,000 miles per year, and add more mileage to their policy as needed. The more mileage they add, the higher the premium.

The insured’s vehicle will require a tracking device (or methods mentioned above) that allows the insurer to gather data to verify the mileage.

This prevents the unscrupulous driver from attempting to purchase limited coverage while they actually pile on the miles throughout the year.

Contact an independent agent for more information regarding the new insurance programs.

Related: Short term car insurance.

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