Gianetta Palmer is a writer for, copywriter, and essayist. Her work has appeared in, Healthline, and The Dyrt Magazine. She is the author of Scrunchie-Fried and writes a lot about car insurance in her spare time.

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific car insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. She also specializes in automa...

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Reviewed by Melanie Musson
Published Insurance Expert

UPDATED: Mar 13, 2020

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Pay-as-you-go car insurance is one of the newest trends to sweep through the insurance industry. Beginning with Progressive’s “Snapshot” program and spreading to most major insurers, this type of auto insurance allows customers to buy coverage based on their actual driving habits rather than statistical information. While this is a great option for some people, it may not be the best choice for all drivers.

How are car insurance rates calculated?

Car insurance companies set the cost of premiums based on the driver’s risk of being involved in an accident. High-risk drivers pay more for auto insurance in order to compensate for the cost of claims that they may be involved in. Risk is determined in several ways. For example, drivers with a history of auto accidents or traffic violations will pay more for insurance coverage. Drivers with poor credit, young drivers and those who are unmarried may also be considered less reliable or more likely to be in an accident.

Auto insurance companies base most rates off of statistical information, so even if a driver has a good driving history he may pay higher premiums if he is a member of a high-risk class of drivers. Additionally, insurance companies will charge higher rates to people who drive many miles a year. The more time a driver spends on the road, the more exposure he has to possible car accidents.

How does Pay-as-You-Go car insurance coverage work?

Some companies, like Progressive and Allstate, offer insurance policies that charge insureds based on their actual driving habits. In order to accurately track and measure a customer’s driving, the insurance company will install a tracking software into the vehicle. In addition to tracking the mileage of the vehicle, this software also makes note of certain driving habits a person has. For example, it will note whether a person drives predominately during the day or at night and at what speed a person usually drives.

The software can also track certain risky driving behaviors, such as braking suddenly and taking turns too sharply. Although the software cannot identify all of a person’s driving habits, it can get an accurate snapshot of certain elements of a person’s driving that may pose a higher risk of an accident.

After collecting data, the software sends a report back to the insurance company. This report is then analyzed, and the insurance rates for the following month are calculated based on the data. This means that the insurance bill might change from one month to the next. It also means that if a driver drives more than he thought he did or engages in risky behaviors, his rates may actually increase after being involved in a pay-as-you-go insurance program.

Some companies specialize in providing only pay-as-you-go policies. For example, the company MileMeter offered affordable policies to drivers who wished to pay for the miles they drove. That company is no longer accepting new customers, but similar companies can be found online by drivers who are willing to opt for a small private insurer.

Why buy car insurance by the mile?

Most insurers assume that an average customer will drive about 10,000 miles per year and base their rates accordingly. People who drive substantially less than this are statistically less likely to be involved in an auto accident and should pay less for insurance.

If an insured works from home or has a short commute, he probably doesn’t put many miles on his car. Similarly, if the vehicle being insured is a “weekend car” that’s only driven for special occasions, it shouldn’t cost as much to insure as the car that’s driven daily.

How can I buy a pay-as-I-go car insurance policy?

Not all car insurance companies offer pay-as-you-go auto insurance plans. Some companies offer them in a limited number of states. Even if your insurance company does not offer an official pay-per-mile plan, you should be able to negotiate a lower premium if you can prove that you drive a low number of miles.

You can provide frequent odometer readings to the insurance company and explain your situation to see what discount you may qualify for. As pay-as-you-go insurance policies become more popular, more insurance companies will begin offering this option in the future to interested drivers. Technological improvements may even make this the default manner for insurance companies to assess a driver’s habits and calculate risk for all insureds.