You probably know that one of the ways to save money on auto insurance is to ask for a low-mileage discount, which is great if you work from home and don’t rack up a lot of miles, but what if you do work outside the home, and have a daily commute that is fairly consistent, but still puts you over the maximum number of miles you can drive for that discount? Or what if you have some months where you do a lot of driving, and others where you barely drive at all?
Either of those scenarios make you an excellent candidate for PAYD, or Pay-As-You-Drive insurance pricing.
What is Pay-As-You-Drive?
PAYD pricing is an additional feature that adjusts all the normal pricing features that go into determining what you pay for car insurance coverage. Essentially, it ties your premiums into the way you actually use your vehicle, rather than assuming a six-month period of average use, and basing your payments on that.
Benefits of PAYD
You already know that the more you’re on the road, the greater the chance there is of being involved in a traffic accident, but more driving also adds to traffic congestion and air pollution. Switching to a usage- or mileage-based insurance plan doesn’t just save you money when you’re not driving that much, but it also acts as an incentive to drive less, which reduces emissions, prevents accidents, eases traffic, and saves you money.
A report issued by the Brooking Institution two years ago at the dawn of PAYD programs estimated that if every American driver bought pay-as-you-drive insurance instead of the standard coverage products, the following would happen:
- 66% of households would pay less for their auto insurance coverage, with savings of up to $270 per car.
- Total American carbon dioxide emissions would be reduced by 2 percent, and oil consumption would be reduced by about 4 percent – which is significant in the wake of the November 11th IEA report that we reached peak oil production four years ago.
- Driving would decline by about 8 percent across the country, netting a combined savings of more than $50 billion in car accidents and other auto-related damage.
Where Can I Get Pay As You Drive Insurance?
Originally, PAYD was available only in Texas, and only from a company called MileMeter, which has recently celebrated its second year in service. Today, PAYD is available in most of the United States, though some states still have laws on the books requiring that clients receive up-front notification of their premium charges, and therefore cannot offer PAYD, because premiums vary according to the number of miles driven.
As well, variations of PAYD are available in Australia, Canada, Israel, Japan, the Netherlands, South Africa and the United Kingdom.
In the United States, PAYD programs are offered through GM (to OnStar Subscribers), Liberty Mutual (in select states, only), MileMeter (only in Texas) and Progressive (via the Snapshot program). Proof of mileage is provided either via a tracking device installed in your car, uploading data from your car’s on-board computer, or submission of verified odometer readings.
How are Payments Determined?
PAYD premiums are based on a variety of factors, but generally the mileage discount is calculated:
- By the actual number of miles driven.
- By the hours or number of miles driven, adjusted for time, location, speed, or driving style
- Within specific ranges of miles.
All of these are adjusted by other rating factors, and pricing options also include adjustments for shorter policy periods (one month instead of the typical six- or twelve-month policies).
Ultimately, the decision to switch from your standard auto insurance policy to a Pay-As-You-Drive policy should be based on your driving habits, and where you live. If PAYD programs are not yet offered in your state, check with your insurer anyway – a conventional low-mileage discount may be an option.