Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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Here's what you need to know...

  • Pay-as-you-go insurance is a special insurance program that was first rolled out in the United Kingdom but has  recently become popular in the United States
  • The purpose of the program is to monitor a client’s driving habits in real time so that the company can apply the right discounts to the policy
  • While a standard auto insurance policy does offer policyholders the option to qualify for mileage discounts, the pay-as-you-go program is much more focused on adjusting the rates for usage and other driving habits on a more frequent basis
  • Insurers will either monitor you with a device that’s connected to your vehicle’s computer or by requiring the vehicle to have a telematics service like OnStar
  • Some people believe that pay-as-you-go insurance is invasive because the device installed in your vehicle will monitor your mileage, your location, the times of day that you drive, your speed, and your braking patterns

One of the biggest complaints that you’ll hear across the car insurance industry is that consumers are often penalized for claims that are made by a whole group.

Since your rates depend on the claims trends in your area and how well your insurer projected claims, it seems a bit unfair to fall victim to this kind of rate increase when you have a clean driving record.

If you’d rather be charged rates based on how you drive, you might want to consider signing up for a pay-as-you-go auto insurance policy.

Pay-as-you-go insurance is a usage-based insurance product that monitors your driving habits to assess whether or not you’re qualified for special good driving discounts. Find out what the insurer looks for and how much you can save.

Start comparison shopping right now by entering your zip code into our FREE comparison tool above!

What is a mileage rating band?


When you buy a standard car insurance policy, the carrier will use a long list of different factors to calculate your rates. Your rates are personalized, but they are dependent on data that’s gathered from a large group of drivers.

According to the insurer, there are certain factors that make you more likely to have an accident. One of these factors is mileage.

When you apply for coverage, the insurer will ask you how many miles you drive to and from work. They’ll also ask you to estimate how many miles each car in your home is driven each year.

The annual mileage is typically used to put you into a mileage rating band. Since most drivers drive an average of 12,000 miles per year, your rates can either go up or down depending on your estimate.

If you drive less than 3,000 miles, you’ll receive a favorable rating on your standard insurance policy for being a low-mileage driver.

The discount will be applied for the remainder of your term. After the term is up, the company will ask for proof of your odometer reading to see if your estimates were accurate.

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What’s the difference between a mileage rating and a pay-as-you-go plan?

A low mileage rating will save you money, but not like a pay-as-you-go policy. When you sign up for this program, the insurer will monitor your car usage and how often you drive. While mileage is one of the factors the company is looking at, there are other factors that can help save you money as well.

With many companies, good driving habits will save you money instantly. Once the company can track your driving habits, you’ll be rewarded with a discount. If you start to drive more than usual, the discount might fall off. Pay-as-you-go plans qualify you for discounts in real time.

How does the insurance company monitor you?


There are two difference types of pay-as-you-go insurance programs. One program requires you to install a device that connects to your onboard computer to track your movements.

The other type of system, which is a telematics-based program, requires you to have a subscription to OnStar so that the company can access vehicle diagnostics data.

Opponents of pay-as-you-go insurance programs believe that insurers have far too much access to their drivers’ personal habits.

What you need to know is that not all of these programs are invasive. If you apply for a device installed program, you might have to worry about your privacy. Luckily, telematics-based programs only look at the mileage reported.

What does a device-based program monitor?

The device that is installed in your vehicle can access a lot more information than you might think. The technology may be great for safe drivers who really do follow the rules f the road, but if you have a lead foot or your stop on a dime stay away.

Some of the things monitored include:

  • Mileage
  • Time of day you drive
  • Speed
  • Breaking habits

If you believe that your good driving will save you money, price the cost of pay-as-you-go insurance. While you are issued coverage for a term, the premiums and discounts can change.

Use our FREE online car insurance quote comparison tool to compare standard premiums and pay-as-you-go premiums for the best rates.