Pay-As-You-Go Insurance: How Does It Work?
OnStar Insurance Discount Helps Lower Insurance Rates
Pay-As-You-Go insurance is an auto insurance program that adjusts rates based on the number of miles you drive. Commonly known as a mileage discount (or usage-based insurance discount), Pay-As-You-Go insurance awards those who drive less with substantial savings on their premiums.
The idea of a Pay-As-You-Go insurance discount was first developed in the U.K. and then piloted in the U.S. by Progressive and National General Insurance, where it has become a cornerstone insurance discount.
Pay-As-You-Go insurance works in one of two ways: through an installed device or through a built-in telematics service, such as OnStar. Both Pay-As-You-Go insurance programs reward with an insurance discount, but behave somewhat differently:
- Device-Based Pay-As-You-Go Insurance. These Pay-As-You-Go insurance programs require the installation of a tracking device that customers may need to remove periodically for analysis by the insurer. Many people consider this an invasive technology because in addition to mileage, the devices can record driving data such as speed, time of day driving and braking patterns. Find out how to get all the benefits of Pay-As-You-Go insurance while protecting your privacy here.
- Telematics-Based Pay-As-You-Go Insurance: In contrast, National General Insurance and OnStar have teamed up on a Pay-As-You-Go insurance program, the Low-Mileage Discount. Using OnStar Vehicle Diagnostics, mileage is reported automatically. No additional reporting is required, no other data is shared, (For this Pay-As-You-Go insurance program, eligible active OnStar subscribers who drive less than 15,000 miles annually opt in to the program and based on the number of miles driven can receive an insurance discount of up to 54 percent.* There’s no penalty for driving more than 15,000 miles - in fact, you still get an insurance discount simply for having an active Onstar subscription).
Pay-As-You-Go Insurance Benefits
Pay-As-You-Go insurance programs are beneficial in several ways. First, there’s the insurance discount, lowering transportation costs. Secondly, Pay-As-You-Go insurance encourages consumers to drive less and drive green, reducing vehicle emissions and contributing to worldwide environmental efforts. Finally, Pay-As-You-Go insurance allows drivers to keep money in their pockets for when they need it most.
It would take an 81-cent-per-gallon increase in the gas tax to achieve the 6.5 percent reduction in miles driven that pay-as-you-drive insurance programs would achieve. -Brookings Institute Learn More
If the state of California implemented a pay-as-you-drive insurance program, it would result in an eight-percent decrease in driving from light-duty vehicles. -Brookings Institute Learn More
Nearly two-thirds of Californian households would receive an insurance discount under pay-as-you-drive insurance with an average savings of $276 per vehicle per year.
-Environmental Defense Fund Learn More
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