Usage based insurance, also known as pay as you drive (or PAYD), is a type of automobile insurance whereby the costs of auto insurance premiums are calculated based on the amount you drive. Pay-as-you-go insurance can provide drivers big discounts, up to 54% according to GMAC.
Recently ABI Research predicted that the number of PAYD users is expected to soar in the coming years, growing at an annual growth rate of 90 percent a year. That means that from just 1.85 million users in 2010, there will be a whopping 89 million in 2017, according to the NY Daily News.
How Much Can Drivers Save?
Pay-as-you-drive vehicle insurance programs really help drivers who do less than 15,000 miles per year. The less you drive, the higher the discount, which can range from 8% to 54%, says Tim Hogan, GMAC’s vice president of national accounts.
Mileage information is collected by a GPS tracking system, and your discount grows for every 2,500 miles fewer you drive. For example, someone who drives between 10,001 and 12,500 miles might save 18%, while someone who drives 7,501 to 10,000 miles per year might save 26% off standard rates.
GMAC Insurance, in collaboration with OnStar, offers a discount for those who have a GM vehicle equipped with OnStar and drive fewer than 15,000 miles per year.
Progressive’s pay-as-you-drive program is called Snapshot. It provides discounts of up to 30% per year off its regular car insurance rates. Snapshot provides discounts on auto insurance based on miles driven, when the car is driven and how it is driven. Driving between midnight and 4 a.m. — the peak time for accidents — and making sudden starts and stops can impact rates.
Snapshot works only for cars built in 1996 or later because a tracking system must be plugged into the on-board diagnostic port. The tracking system monitors mileage, time of day when the car is driven and driving style. Snapshot’s tracking system does not use GPS, so it does not track where the vehicle has been driven.