Can Pay-As-You-Go Auto Insurance Save You Money?

If you're driving less, you might be eligible to spend less on auto insurance with pay-as-you-go plans. But these per-mile policies come with some drawbacks.The pay-as-you-go trend has already spread to a wide variety of consumer services ranging from wireless to software. Now it looks like auto insurance might be the next industry to jump on the bandwagon.

The idea behind it is simple: People should only pay for the insurance coverage that they actually use. In other words, drivers who drive less would pay less for insurance.

Consumer groups and some economists have demanded this type of coverage for years, and their lobbying has paid off. Last month, Progressive Insurance began advertising its Snap Shot Discount pay-as-you-go product nationally. Its available in 32 states.. State Farm and Allstate also offer similar deals in a handful of states.

Texas spearheaded the movement: It was the first state to allow such coverage back in 2001, while California -- a state that often begins auto trends -- only began permitting it in December.

Big Discounts for More Data

The industry argues that these policies can save consumers a bundle. Progressive estimates potential savings of $150 a year, for example. "Pay-as-you-go insurance can be an excellent choice for people who drive very few miles during the week," Chris Kissell, managing editor of, writes in an email.

But experts caution that pay-per-mile policies aren't right for everyone. For one thing, to determine eligibility, insurers typically install a device that tracks customers' driving habits for some time -- usually about six months, Kissell says. "Some drivers may not be comfortable with this and may see it as an invasion of privacy," he writes.

Some of the programs also have strict rules about when customers can drive and may disqualify customers from getting the discount if the tracking device shows that they often drive late at night, he adds.

An Invasion of Privacy?

Progressive's program has drawn the ire of consumer groups because it requires drivers to install a "Snapshot" device, which monitors how far -- and when -- people drive. The device, about the size of a garage-door opener, collects data for 30 days before the company decides if a driver is eligible for the pay-as-you-go discount.

Carmen Balber of Consumer Watchdog argues that drivers should not have to give up their rights to privacy to get a good rate on car insurance. She also argued that drivers who are on the road late because they work the late shift are unfairly penalized by these programs.

Progressive, the fourth-largest auto insurer, began working on the concept of usage-based insurance in
1998 and made it broadly available in 2008. It rejects the notion that consumers are getting a bad deal, saying that about a quarter million drivers have signed up.

"Snapshot is best for people who drive less, in safer ways and during safer times of day," Brittany Senary, a Progressive spokeswoman, writes in an an email. "Those are the drivers who are most likely to get a discount." Drivers' rates are guaranteed not to increase as a result of Snapshot, she says, adding that the discount isn't based on location or speed. "The device does not have GPS, so we don't know where the car is," she writes.

More Per-Mile Programs

Like Progressive, Allstate also requires drivers to install a vehicle-monitoring device about the size of a pack of cigarettes to quality for its per-mile policy. Customers get a 10% discount for enrolling in the Drive Wise program, which launched in Illinois in December and could expand to other states this year, and could be eligible for additional discounts, depending on their driving habits. "Is a rewards-based program," spokeswoman Stephanie Sheppard says in an interview. "There are no penalties."

State Farm's Drive Safe and Save program gives customers a 5% discount for enrolling, as well as the possibility of additional discounts depending on the miles they drive. The program is currently offered only in California and Ohio, although the company plans to expand it to Illinois and Texas. In California, drivers can simply report their mileage, but in other states, State Farm only enrolls drivers whose vehicles are equipped with On Star, which can track vehicles' miles. As with Progressive, the savings from this plan can be considerable, but also can vary widely.

Saving the Environment

Not only does usage-based auto insurance save consumers money, it's also good for the environment, according to a 2008 report from the Brookings Institution,

"Just as an all-you-can-eat restaurant encourages more eating, current insurance pricing encourages more driving," the report says. "The extra driving that results from this inefficient system leads to more accidents, more congestion, more carbon emissions, more local pollution, and more dependence on oil. This pricing system is also inequitable because low-mileage drivers subsidize insurance costs for high-mileage drivers, and low-income people drive fewer miles on average."

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Ron Johnson

Pay as you go is a great idea. It lowers the cost for people who are less likely to need it. It makes more sense to do insurance this way.
Ron Johnson |

May 08 2014 at 11:01 PM Report abuse rate up rate down Reply
John Bond

Pay as you go insurance would be one of the best things available for me. I often have months that I don't drive anywhere so it would save me a ton of money. It also means that we would get discounts for having a plan that was like a contract so we sign on for longer but pay less.
John Bond |

April 14 2014 at 3:17 PM Report abuse rate up rate down Reply
Hilary Kimbel

I would love to take a great vacation with my family. However, I really need to get new and good auto insurance. Where is the best place to go for that? Has anyone used this company:

January 22 2014 at 5:58 PM Report abuse rate up rate down Reply

I think that it could be pretty useful for some people, but even then, I would assume that it depends on who you are going through for the insurance.


January 21 2014 at 11:08 PM Report abuse rate up rate down Reply
Joel Weston

I like your article! I actually work for this startup based in San Francisco called StreetOwl( We\'re about to launch our free mobile app for Iphone, which will allow users to see how user-based insurance works without having to commit to it. The app will monitor people\'s driving styles with their iphone\'s built in GPS devices and determine how much money you could save with UBI at various insurance companies. StreetOwl will also allow people to reset the app and will give users feedback on how to improve their scores and ultimately save more money. I thought you and your readers might be interested.

Right now, we\'re simply trying to connect with as many people as possible who are interested in user-based insurance and who might have some useful feedback or information that we haven\'t yet considered. Needless to say, articles like yours here are super helpful so thank you again, cheers!

August 19 2013 at 3:45 PM Report abuse rate up rate down Reply

Great article, here are several tips from me on how to get cheaper car insurance:
- Use insurance comparison sites like: . Once you register you'll get free quotes from a lot of insurance companies.
- Ask for group discount.Get as many insurances as you need from the same company.
- Always stay insured.If you cancel your plan even for several days, some companies may consider you as high risk and you may need to pay more next time.
- Car Security Devices.Any extra security measures you take to deter thieves from stealing your car will further decrease the risks you pose to the insurance company.
- Good driving records.That will definitely lower your price.

January 12 2012 at 4:34 AM Report abuse rate up rate down Reply

You sir are the most liberal person i know and you call America fat look at yourself

June 27 2011 at 7:24 PM Report abuse rate up rate down Reply

there are factors that Insurers could offer that would save consumers even more.
For example a co worker and a very astute lady recently went through divorce. Her ex'es credit rating was ruined by moves he made during the divorce proceedings so her credit rating at least for the short run is bad so she gets hit with high costs because of it. I'm saying there is no reason for any insurance company to even have knowledge of credit ratings, insurance is paid up front so they have no slow pay losses. Also I wonder how many consumers actually check the performance record of insurance companies? You might be surprised how many big name companies have a very high complaint rate some fight paying any claim either valid or not and just leave the insured hanging. Check the complaint ratio on any company you are interested in. the low cost is the small part how well they pay off claims is the most important. For the record I am not in the insurance industry nor have I ever been but I have seen horror stories about getting claims paid.

April 05 2011 at 9:35 PM Report abuse rate up rate down Reply

I agree. Driving history should count for more than a credit rating. In fact, the use of credit ratings should be restricted to issuing credit, or for employment in financial positions, nothing more. As for insurance trackers, it's only a matter of time before an option for lower rates becomes a requirement to avoid higher rates. Insurance companies are the greediest of corporations.
This whole "tracking" trend should make everyone sick. Big Brother wants to track every American every minute, and when it can't do it, it encourages private companies to help by offering discounts for tracking devices. Consider discounted toll transmitters that report your location every time you use a toll. Why not discounted tokens instead? Remember, no matter who gives you a tracker, Big Brother can fish through the data at any time, and thanks to the Patriot Act, doesn't even need a warrant or probable cause. All our Constitutional protections are vanishing as increasingly powerful computers fulfill politicians' desire for total control of the population.

April 04 2011 at 1:12 PM Report abuse rate up rate down Reply

The biggest problem with Auto Insurance is the basing of your rate on your credit score...this is total BS as the industry cites a 20 + yr old Texas study to try and justify hiking the rates for people with bad credit (everyone has bad credit nowadays due to the economic downturn).....IT SHOULD BE BASED ON YOUR DRIVING HISTORY....PERIOD ! ! ! !....(Progressive is useless as they tried to charge me almost double the rate I get from Travelers....and I was with Progressive for 7 yrs with a perfect driving record..they will never get 1 cent from me ever again )

April 04 2011 at 9:20 AM Report abuse rate up rate down Reply