Pay-As-You-Go Car Insurance Approved in California

Traditional policies can seem like a lot to someone who doesn’t drive far or frequently. There are so many personal circumstances that could lead to someone overpaying for even the most basic coverage. As most of us are aware, insurance costs can take up much of our monthly budget. Now there’s some good news if you feel as though you’re overpaying for your auto insurance policy. Two auto insurers got the green light to offer pay-as-you-go car insurance in California, a first for the golden state.

California Insurance Commissioner Steve Poizner announced Thursday that he had approved filings by the Automobile Club of Southern California and State Farm Mutual Auto Insurance to offer such programs.

They are intended to reward drivers who voluntarily drive fewer miles by offering them lower car insurance rates – State Farm estimates customers will save $31 million with the new program, while Auto Club estimates $68 in savings per vehicle for participating drivers. (For more information, read our “Is car insurance more expensive in California?“).

Beginning on February 28, 2011, State Farm customers will be able to enroll in the “Drive Safe & Save™” program.

Those who agree to self-report their odometer readings at the beginning and end of each policy period, or agree to allow State Farm to access their mileage data automatically when the insured’s vehicle has an active On Star system, will be offered an initial 5% discount for the first policy term.

The “Automobile Club of Southern California’s Pay-Drive program” will be made available to insured drivers on February 1, 2011, with rates on an auto policy at 1-10.5% lower than those insured in the same ‘mileage band’ who simply estimate their mileage.

How does pay-as-you-go car insurance work?

Basically, this type of car insurance allows those who drive relatively fewer miles than the average commuter (retirees and college students for example) to save money on their car insurance premium.

With usage-based insurance, drivers essentially pay for a minimum amount of insurance, perhaps 6,000 miles per year, and add more mileage to their policy as needed. The more mileage they add, the higher the premium.

The insured’s vehicle will require a tracking device (or methods mentioned above) that allows the insurer to gather data to verify the mileage.

This prevents the unscrupulous driver from attempting to purchase limited coverage while they actually pile on the miles throughout the year. This way, they don’t end up spoiling affordable car insurance for someone with pristine driving habits, and who wouldn’t do something underhanded like that.

Low-mileage drivers in California will be able to take advantage of this low-cost car insurance, which is hopefully the start of more affordable rates and alternative types of insurance among larger companies.

Contact an independent agent for more information regarding the new insurance programs. If you’re an infrequent driver, finding an auto insurance company that will work with you to find a cheaper monthly rate may be easier now as long as you live in the affected areas.

Related: Short term car insurance.