“Pay-as-you-go car insurance” is a relatively new type of insurance coverage borne out of the ongoing struggle to lower the cost of insurance and offer a wider variety of insurance options.
How Does Pay-As-You-Go Car Insurance Work?
Insurance companies have developed a highly technical device that is installed in your vehicle.
This device tracks your mileage as you drive your car. You are only charged for the number of miles your drive.
The less you are on the road, the lower the chance you will be involved in an auto accident, and thus file a claim and cost the insurance company money.
Not only does this device track your mileage, but it tracks your location as well.
Some experts argue this is an invasion of our privacy. Of course, if you aren’t up to “no good” and only drive a limited number of miles, who cares?
The popular Progressive Snapshot is an example of such a device, though it is used to track driving and adjust premiums, not necessarily pay-as-you-go coverage.
Will pay-as-you-go car insurance benefit you?
The answer depends on your personal driving habits. If you only commute small distances or rarely use your car, the answer may well be “yes.” The less you drive, the more you save.
This may also benefit you if you have a second vehicle that isn’t a regular driver.
If it’s parked most of the time while you drive another vehicle back and forth to work, this may be the best option to reduce your overall insurance premium.
It might not make sense for you to pay the premium required to insure a car for a full year. Many insurers have a “minimum-mileage” rating requirement.
For example, your insurer may calculate your rate using 8,500 miles as the minimum amount of miles you travel per year.
It doesn’t matter whether you drive one mile or 8,500 miles, the rate is the same.
When pay-as-you-go car insurance backfires:
The money you save on your insurance premium may not be worth it if you have to cover all, or some, of the costs for obtaining and installing your pay-as-you-go tracking device.
Make sure to calculate any costs associated with installing and/or servicing your device when determining if you’re actually going to save money.
Just like any other new technology, you can expect to pay a premium for being the first to have the newest toys.
If you went form Beta-Max to VHS to DVD to BluRay faster than anyone else you know, you are intimately familiar with these costs.
Another situation when pay-as-you-go car insurance may backfire on you is if you go over the maximum mileage allotted for the program.
Similar to leasing a car, once you surpass the agreed upon maximum mileage, you may be subject to a penalty, or worse, a “per mile” fee for every mile over the limit.
Make sure you carefully read and understand the contract you sign to ensure you limit your exposure to these potentially hidden or deceptive fees.
Currently, only Progressive and GMAC offer pay-as-you-go car insurance, and even then, they don’t offer it to everyone or in all areas.
See also: Short term car insurance.