Learning About Pay As You Go Car Insurance

A new type of automobile insurance policy has been introduced by some companies. It is pay as you go car insurance (PAYD). Under this policy, an automobile owner pays insurance by the mile rather than a flat rate.

This type of insurance has been in effect in Europe for some time and is just now becoming known in the United States. It is a simple arrangement in that you drive, the miles are recorded and reported to the insurer and a flat rate is paid on the number of miles driven.

The amount of mileage traveled is sent to the company in one of three ways. They are, reports by an authorized person, a GPS chip, OnStar or, with some smaller companies, just reporting the odometer reading. In the latter case, if a person gets in an accident and it is found that they have lied regarding the mileage the policy will not pay the claim.

The person authorized to read the odometer is a company approved dealer, mechanic or agent. He or she will record the mileage and send it to the insuring company. When it is received, the policy holder will receive a bill.

Another method used is a GPS chip, installed in the automobile, automatically reports the mileage to the insurer’s computer. It also reports where one’s automobile is located. This feature also reduces the auto theft part of one’s policy as a stolen car is easy to track.

OnStar is a system that is on GMAC vehicles and automatically records the vehicle’s mileage for which one is billed. Many people claim that PAYD is much less expensive than regular policies. It is interesting that some states have put this idea forward as a way to tax people for road maintenance, based on the number of miles they drive, but have failed in their attempts.

A number of well known automobile insurance companies are adding this option to the policies they are selling. Most certainly, it would be a money saver for someone who does not drive very much, especially the elderly. However, those who must drive long miles to work it might be more costly.

Currently automobile coverage is based on a number of conditions. The age and model of car, who will be driving it, where it will be stored and a number of other things. Using the year a car was purchased and the current odometer reading it is not difficult for them to estimate how much driving a person does. It would seem that these items would also be involved when the ‘price per mile’ is calculated.

Some companies, who issue this type of coverage, bill by the month. Therefore, as with utility bills, it is a usage-based service and customers pay a variable rate based on the amount the automobile is driven or ‘used’. Pay as you go (PAYD) is an idea that can be expected to be presented to automobile insurance customers more strongly over the next few years. When this idea is presented, the insured party needs to carefully read all of the requirements before going into this type of program.