Pay-As-You-Go Car Insurance?


Several auto insurance providers now allow customers to lower their insurance rates based on how they drive. Called “pay as you go” car insurance plans, the policies are underwritten the same way conventional plans are done but provide people with the chance to reduce their rates by up to 30 percent based on how, when and where they drive.

This type of car insurance has been preferred by environmentalist groups believing that saving money will encourage people to drive less.

Another attraction to pay-as-you-go car insurance is that the market can be better segmented; thereby enabling those who drive less and less dangerously save on car insurance. Companies could market to these drivers and attract them with lower rates. These types of drivers often include students who don’t drive as much as commuters and are often unable to pay high rates.

Of course, when people drive less, there also are fewer accidents, and a 2005 study conducted by the Brookings Institution indicates people who drive about 5,000 miles per year were involved in half the number of insurance claims as those who drove 30,000 miles per year.

Pay-as-you-go insurance may be a smart move for those who don’t drive very often and are willing to be in close contact with their car insurance provider. It will prove cheaper, though more time-consuming.

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