Pay-as-you-go, pay-as-you-drive or usage-based car insurance provides coverage based on when, how much and how well you drive. Insurers measure these by using tracking devices to gather driver-behavior metrics. Similarly, distance-based, or low-mileage, insurance is based on how far you drive.
Many insurers offer usage-based plans. Significant players include Progressive Snapshot, State Farm Drive and Save, Nationwide SmartRide, Travelers IntelliDrive and Esurance DriveSense. Keep reading to learn about usage-based insurance and how it works.
What is pay-as-you-go car insurance?
Pay-as-you-go car insurance, also known as usage-based or pay-per-mile insurance, is a type of auto insurance that allows drivers to pay premiums based on how much they drive. This model is different from traditional car insurance policies, which typically charge a fixed premium regardless of the amount of driving.
The insurance cost is primarily based on the number of miles driven. This is particularly beneficial for low-mileage drivers, who may find traditional insurance expensive for the amount of driving they do.
Some plans may also monitor driving behavior, offering additional discounts for safe driving habits. This can encourage safer driving and potentially lower rates.
Pros and cons of pay-as-you drive insurance
Pay-as-you-drive (PAYD) insurance, or usage-based insurance, adjusts premiums based on how much and how well you drive.
Pros of pay-as-you-drive insurance
- Cost savings for low-mileage drivers: PAYD insurance can be cheaper for those who drive less than average, as premiums are based on mileage or driving habits.
- Fair pricing: It is seen as a fair way to price insurance because it aligns the cost more closely with the individual’s vehicle usage and risk exposure.
- Flexibility: Someone who uses public transportation to commute might find pay-as-you-go insurance more economical for their occasional driving.
- Encourages safe driving habits: Some programs use telematics technology to monitor driving behaviors such as speeding, harsh braking and driving time of day. It can encourage safer driving habits, as drivers may be more conscious of how their behaviors could impact their insurance rates.
Cons of pay-as-you-drive insurance
- Privacy concerns: It typically requires installing a telematics device in your vehicle or using a smartphone app that tracks driving behavior and mileage. This tracking can raise concerns about privacy because your insurer collects data on where and when you drive.
- Higher rates: While pay-as-you-drive insurance can save money for those who drive less and safely, it might result in higher premiums for those who drive frequently, at peak times, or in a manner considered risky by the insurer.
- Limited availability: PAYD insurance isn’t available from all insurance providers or in all states. Its availability can be limited depending on where you live and which insurance companies operate in your region.
How does usage-based insurance work?
You’ll often hear the term “telematics data” when referring to pay-as-you-drive insurance. Usage-based insurance (UBI) collects this information on your driving performance, which insurers use to calculate a discount if you’re considered a safe driver.
Telematics use cellular, GPS and other technology to collect information on how you drive. They track when you drive and your speed, as well as how many miles you drive and any sudden changes in speed or how often you brake harshly or accelerate significantly. Some even track how much you idle, while others may also include “cornering” and phone use behind the wheel.
An insurer usually collects data on your driving through one of three ways:
- A plug-in device that connects to the car’s on-board diagnostic (OBD II) port
- A smartphone app
- Systems built into your car, like ConnectDrive, OnStar or Safety Connect
Usage-based insurance generally falls into two categories: most monitor your driving, such as mileage, time of day and changes in speed. Others only track how many miles you drive.
Typically, a program tracks a driver to generate a profile. This period is usually two weeks to 30 days. However, it can be 90 days, and some carriers continually track your driving.
If you qualify for a discount, it’s generally credited when you complete the program and renew your auto policy with the UBI company. In some cases, you need to get tracked every six months. The specifics depend on the insurer.
Most insurance companies provide a small instant discount for enrolling in the service. Some insurance companies promise that your rate won’t ever increase based on your usage. Others, such as Progressive, say that though rare, your UBI data could raise rates in some cases.
The other type is based on mileage. For example, a plug-in device tracks how many miles you drive daily. You’re billed a monthly base rate plus your per-mile charge. This is how Metromile works, for instance.
How much can you save with usage-based insurance?
In general, to qualify for a discount, you have to drive a relatively small amount, avoid driving between midnight and 4 a.m. on weekends and refrain from hard braking and dramatic acceleration.
How much you save depends on the plan and how you drive. Typically, you can get a 10% telematics or usage-based discount. Note that discounts typically apply to part of your policy, not the entire thing—ask your insurer about it.
Some insurance companies, for example, Nationwide, which offers the UBI plan called SmartRide, says the savings can be up to 40%. Progressive doesn’t cite a percentage but instead says that drivers using SnapShot saved drivers an average of $231 a year on their policies. Metromile says the average savings is $947 a year. Note that these savings will depend on personal factors like where you live and your driving record.
How does usage-based insurance differ from traditional auto insurance?
Traditional car insurance rates are based on many factors:
- Your driving record
- Type of car you drive
- Demographic factors that include age, location and marital status
While usage-based policies consider these factors, they base part of the rate on your driving behavior gathered by their plug-in devices or mobile apps.
If you choose usage-based insurance that tracks your driving behavior, be sure to understand:
- Precisely what the company is monitoring
- How long it will track you
- Whether it shares data with others
- If your rate may increase based on the results
These policies vary. For instance, some only track speed, the time you drive, how much you drive and hard-brake. But, for example, SmartRide by Nationwide also considers your idle time because driving in stop-and-go traffic is a risk.
Some plans calculate a discount if you qualify after a set time—two weeks, a month or a set amount of mileage—say, once you reach 500 miles. But others continually track your driving behavior, so consumers should ask about that, too.
“Our UBI program (Drivewise) provides savings on traditional auto insurance,” says Justin Herndon, an Allstate company spokesperson. “Our pay-per-mile program (Milewise) provides a more personalized pricing plan that adapts to how much a driver uses their car versus a traditional plan that is not dependent on mileage.”
Which companies offer pay-as-you-drive insurance?
In the chart below, see the companies that offer pay-as-you-drive insurance:
| Company | Average savings |
|---|---|
| Metromile | $947 per year |
| Progressive’s Snapshot | $231 per year |
| Allstate’s Drivewise | Vary by state |
| Allstate’s Milewise | Varies |
| Travelers IntelliDrive | Up to 30% |
| State Farm’s Drive Safe & Save and In-Drive | Savings may exceed 30% and vary state-to-state |
| Esurance’s DriveSense | Varies |
| Safeco’s RightRack | Between 5% and 30% |
| Nationwide’s SmartRide | 40% for safe driving |
Keep reading to learn about the car insurance companies that offer pay-as-you-drive policies, which might save drivers money depending on their vehicle usage and driving behavior.
Metromile
State availability: Available in Arizona, California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia and Washington state.
Metromile offers car insurance powered by artificial intelligence and telematics technology. Recently, Metromile developed a policy called “fractional insurance.”
“We partner with a car-sharing marketplace, so people who share their cars online don’t have to pay for the miles that other people drove when rented,” says Rick Chen, spokesperson for Metromile.
According to Metromile, customers have saved an average of $947 per year. When you sign up, the insurer gives you a free Metromile Pulse device. This device helps count the miles you drive and connects to the car’s diagnostic port. It’s only available in Arizona, California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia and Washington, but the company expects to expand to other states.
“Most Americans could save as much as hundreds of dollars by switching to pay-per-mile car insurance,” Chen says. “Savings of $1,000 or more a year when switching to Metromile are not uncommon, especially among the environmentally conscious, those who live in cities and suburbs, retirees and the occasional road-trippers or neighborhood errand runners.”
Progressive’s Snapshot
State availability: Progressive offers both a plug-in and a mobile app option. However, a participation discount is not available in either Hawaii or New York.
A usage-based insurance rating program that allows customers to potentially save based on driving habits, such as how you drive, how much you drive and when you drive. Snapshot collects data through the driver’s smartphone. Progressive uses this data to calculate a driver score.
To participate in the Snapshot mobile program, you must agree to download the app, complete the registration process and keep the app enabled while driving until Progressive tells you that data collection is complete. The mobile app will collect whether you use your phone while you drive as well.
The onboard version uses a tracking device plugged into the OBD-II port, which is typically under your steering wheel. The device then beeps if you brake too hard or step on the gas too much.
“People who drive less and in safer ways are most likely to get a discount. If someone displays high-risk driving behaviors, their rate could increase in some states. Additionally, customers can opt out of Snapshot risk-free within the first 45 days after signing up if they determine the program isn’t a good fit for them,” says Ron Davis, a Progressive spokesperson.
Allstate’s Drivewise
State availability: Drivewise savings are not available in Alaska or California.
With Drivewise, Allstate’s mobile app records driving habits and Allstate uses the data to determine if customers qualify for discounts. There’s usually an enrollment savings for the first six months of use followed by savings determined every six months by how safe someone is driving.
“It began as a plug-in program and we still have a few states that are transitioning over to the app version,” Davis says.
Allstate’s Milewise
State availability: Available in Delaware, Idaho, Minnesota, South Carolina, Washington, Wisconsin and West Virginia.
With Milewise insurance, you pay a daily base rate plus a per-mile rate when you drive using a plug-in device. It’s a good option for stay-at-home parents, retirees, part-time workers, those with short commutes or remote workers.
“Drivewise continues to be a popular program,” Herndon says. “Milewise has also been popular with customers who do not use their car very often and can realize savings from the non-traditional policy.”
How much can you save using Milewise?
“There really isn’t a number for Milewise because each driver is different — the less you drive, the less you pay,” Herndon says. “So, it’s more about how low you can keep your rate.”
Travelers IntelliDrive
State availability: IntelliDrive is available in Alabama, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Washington, D.C., Wisconsin and Wyoming.
This program from Travelers uses a smartphone app to capture and score your driving behavior and the drivers covered on your policy. The program measures driving time of day, speed, acceleration, braking and handheld device usage while driving.
Safe driving habits can lead to up to 30% savings at renewal, while riskier driving habits may result in a higher premium. The discounts vary by state.
State Farm’s Drive Safe & Save
State availability: Discounts vary state-to-state (New York is capped at 30%). Not available in California, Massachusetts or Rhode Island. A discount may not be available in North Carolina. Drive Safe & Save Connected Car is not available in all states.
Drivers can participate in Drive Safe & Save through usage of a Drive Safe & Save Connected Car or by downloading the free Drive Safe & Save mobile app for a discount of up to 30%.
The Drive Safe & Save Mobile product option is for customers who have a compatible iPhone or smartphone running Android. You download the free app and complete the setup, which includes pairing the app to a Bluetooth beacon provided to the customer.
The app gathers miles driven and driving characteristics. The customer reports an odometer reading at setup and before each renewal. The discount is then based on mileage and driving characteristics.
Esurance’s DriveSense
State availability: Available in Alabama, Arizona, Arkansas, Colorado, Connecticut, Georgia, Iowa, Idaho, Illinois, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington and West Virginia.
Esurance’s DriveSense app monitors driving habits by “trip” and you can get a discount for enrolling in the program. DriveSense participants must log at least 50 trips per term and discounts are customized to your driving.
“DriveSense uses smart telematics technology that could help users improve their driving while also rewarding them for being safe and responsible behind the wheel,” says Kate Peifer, Esurance spokesperson. “It logs their driving, drawing maps of driving patterns and behaviors and provides trip tips and weekly recaps.”
Safeco’s RightTrack
State availability: Available in Alabama, Arkansas, Arizona, Colorado, Connecticut, Florida, Georgia, Iowa, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Massachusetts, Maryland, Maine, Michigan, Minnesota, Missouri, Mississippi, Montana, North Dakota, Nebraska, New Hampshire, New Jersey, New Mexico, Nevada, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Vermont, Washington, Wisconsin, West Virginia and Wyoming.
Safeco, whose parent company is Liberty Mutual, offers a PAYD that works with the Safeco Mobile app. All drivers on your policy must register and drive for 90 days, tracking your trips.
The RightTrack score is based on total miles driven, nighttime driving (from midnight to 4 a.m.), braking and acceleration. Participants instantly receive a 10% discount upon enrollment, and could save 5-30% on their auto policies.
Nationwide’s SmartRide
State availability: All states except Alaska, Hawaii, Louisiana and Oklahoma. SmartRide program criteria differ in California and North Carolina. In Virginia, the discount may decrease at renewal based on changes in driving behavior.
This is a usage-based insurance program where drivers can enroll and install the SmartRide app that measures driving trends. Specifically, SmartRide measures the following factors: Miles driven, hard braking, fast acceleration, idle time and nighttime driving (midnight-5 a.m.).
You’ll save 10% for enrolling. Most drivers earn their discount in 80 days and could get up to a 40% discount for safe driving.
Who should get usage-based insurance?
You might want to check out a UBI plan if you don’t drive much, work from home or have a very short commute to your job. It’s also a good fit for retirees who don’t drive much.
These plans are a good fit for those who:
- Drive less than 7,000 to 10,000 miles a year
- Don’t drive at night
- Don’t have long commutes
- Don’t frequently drive in traffic
- Those who don’t hard-brake when driving
“Drivewise is a great tool for any consumer as it can help identify safe driving habits for any user,” Herndon says. “Milewise is best-suited for low-mileage drivers, such as seniors or commuters, who use a train to go to and from work.”
Pay-as-you-drive insurance: The bottom line
Consumers should ask insurers how they use the data in setting their rates and if it’s ever sold or shared with third parties.
You should also know if UBI can increase your rates. Most carriers state that you’ll receive a discount if you qualify – nothing happens if you don’t.
UBI plans’ terms and conditions can also vary significantly between states. For example, UBI plans are not even available in some states.
If you have a mileage-based plan, find out what base you can’t exceed to earn the discount, lest you throw that discount out the window as you drive in excess. Also, ask when and how the insurer applies the discount.
FAQ: Usage-based insurance
Is pay-as-you-go car insurance worth it?
If you don’t drive often, pay-as-you-go insurance might offer significant savings compared to traditional policies. It’s particularly suited for people who work from home, use public transportation frequently, or own a second car that isn’t used much.
These plans often start with a lower base rate; then, charges are based on the miles you drive. The less you drive, the less you pay.
How can I sign up for a PAYD insurance plan?
To sign up for a pay-as-you-drive insurance plan, you need to contact an insurance provider that offers this type of coverage. The process may involve providing details about your vehicle and driving habits and installing a telematics device in your car. Some insurers may allow you to start the process online or through an app. It’s important to compare different plans and understand the terms and conditions before enrolling.
What data are collected in a pay-as-you-go plan and how is it used?
Pay-as-you-go plans typically collect data through a telematics device installed in the vehicle or a smartphone app. This data can include the number of miles driven, speed, time of driving and braking and acceleration patterns. Insurance companies use this information to assess driving habits, calculate risk and adjust insurance premiums. The data might also be used to provide feedback to drivers about their driving behavior and suggest improvements.
Resources & Methodology
Sources
Insurance Information Institute. “Background on: Pay-as-you-drive auto insurance (telematics).” Accessed July 2024.
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