Can You Save Money With Pay As You Drive Auto Insurance?

For many services that you use everyday, you only purchase what you need. For example, if you don't watch much television, you probably purchase the basic cable package. The same could be said for your cell phone plan--you use your cell phone a lot, so you have a monthly plan with plenty of minutes.

But with an auto insurance policy, you pay the same amount regardless of whether you drive more or less in any given month. If you only drive 3500 miles a year, why should you pay the same premiums as a traveling salesman?

Traditional Auto Policies

Most people pay for auto insurance by the policy period; typically 6 months or a year. You are covered during that time period, regardless of how much you drive. But what if your auto insurance was more like some cellular phone plans, where you are able to choose the number of miles you actually drive?

State regulations vary, but most states allow discounts for people who drive less than a pre-set limit--say 7500 miles a year. If you are off the road, you are not at risk of a claim and should pay less. But what if you drive 3000 miles a year, or 35,000 miles per year?

Pay As You Drive

Pay as you drive is a type of auto insurance in which insurance premiums are based on the number of miles driven. Mileage information is gathered by dedicated GPS units, or certified periodic odometer readings. Policy periods can be as short as one month, and premiums are based on the previous month's mileage. Another option allows pre-payment for a certain mileage level, and you can buy more miles as needed. Some states are even considering pay-at-the-pump options.

Privacy Concerns

There are some privacy concerns about how the GPS data may be used. Technology exists for GPS units to monitor driving behavior, as well as speed travel, acceleration and braking rates, and location. That data can be used to compute premiums based on driving habits. But could you be surcharged for exceeding the speed limit, even though you received no citation? Can your insurer track your movements? Should you pay more for driving during rush hour on high-risk commuter routes?

Possible Benefits

Although there are some privacy concerns, there may also be a few benefits of the pay as you drive GPS data. A study by the Brookings Institute indicates that people may drive less when they pay by the mile, which may save fuel, reduce traffic congestion, and decrease pollution levels.

How Much Can You Save?

For drivers who don't drive a lot, the savings could be substantial. For people who spend a lot of time commuting, traditional policies may be much more affordable.

Pay as you drive is available in 34 states, so check on availability in your area and compare rates. Find cheap car insurance by comparing several competitive quotes.

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