AUTO INSURANCE ARTICLE

What is Pay-By-The-Mile Auto Insurance?

By: regalado

Auto insurance is generally a fixed expense. It is like an eat-all-you-can buffet. You pay an amount no matter how much you eat. So, people pay the same amount no matter how much or how less they drive. But the rules and practice for car insurance is changing as a new scheme is being introduced. And this is the pay-by-the-mile, also referred to as pay-as-you-drive auto insurance.

It is considered today as one of the best solutions to reward drivers who drive less, and making insurance more equitable. This new insurance scheme is expected by the motoring enthusiasts to significantly reduce driving--and clear the roads of congestion, collisions, and pollution that driving entails. Pay-by-the-mile auto insurance will now give a respite to those who oftentimes take public transport or join a carpool, from paying the same auto insurance rate. This scheme would also benefit urban professionals who live near their work, those who work from home, and households with secondary cars that are rarely driven.

Pay-by-the-mile auto insurance is hailed increasingly by environmentalists and climate change watchers as a feasible step to reducing annual fuel consumption by as much as 10 percent, without the drawback of higher insurance for average drivers.

The average person is observed to drive her car around 10,000 miles a year, paying approximately $1,000 each year for insurance. Taking these numbers into account, it means that auto insurance costs about 10 cents for every mile. And with the pay-by-the-mile auto insurance scheme, drivers will have more incentives to reduce their mileage by driving less. On the same note, if a driver joins carpooling for a 40-mile roundtrip commute everyday, she could save $4 a day (more than $800 a year) in insurance costs. The pay by the mile rate is also consistent with the existing risk-based system, as it can be adjusted, say doubling the per mile rate for an accident-prone teenage boy and cutting a middle-aged parent’s per mile rate due to good driving history.

But how is this measured? How is the tracking done? The pay-as-you-drive scheme is based on odometer readings, auto repair records or a mileage counting device, excluding any kind of GPS tracking device.

According to an Environmental Defense Fund report, this insurance scheme could save California about 5.5 billion gallons of gasoline and about $40 billion in car-related expenses between 2009 and 2020. Brookings Institute, in their own study, projected potential savings of about $270 per year for every household. In this research, they also found out that low-income families would particularly gain from insurance by the mile scheme, as those in the lower-income typically drive lesser miles.

Driving less is not only good for your wallet; it also allows you to be good to our environment. With the pay-by-the-mile auto insurance, it is high time that you get rewards for taking care for your finances while making sure our environment is protected.