The name is self explanatory as we can somehow make what the pay-as-you-drive car insurance would mean. Here the premiums are linked to the use of the vehicle. This means the number of miles driven by using the vehicle to be insured, are directly linked to the premium payable. So if you drive less, you pay less.

It is assumed that more a person drives, the higher is he prone to be involved in an accident. Also as more and more cars or other vehicles are driven, there is addition to pollution and traffic congestion. Usage based or mileage based insurance acts as a strong deterrent to drive less. Thus it is beneficial in reducing traffic from the roads and also reducing the vehicular emissions that are seriously hurting the environment. All these advantages are in addition to preventing accidents and saving lives and money.

Working of the low-mileage insurance

Pay-as-you-drive (PAYD) can be tailored to suit individual needs of the consumer. Premiums can be set on either of the following; as per the miles driven, as per the miles driven within specific ranges and as per the miles or hours driven, with adjustments that can be made for location, time, driving style and speed. The working of PAYD is simple. One has to pay a minimum premium and buy the kilometers. If the car is driven for lesser kilometers than the premium paid for, these kilometers are carried forward to the next period as they do not stand expired. If the kilometers insured are lesser than the amount insured, there is a need to buy a top-up.

The above points are taken into consideration along with certain other rating factors. The premium pricing options also include shorter periods of policy such as a month and premiums that are based on mileage and not for a fixed period. To monitor the mileage, there are a number of options available like certified odometer readings, GPS based meters that are regularly checked, uploading of data through the on-board computer or pay-at-the-pump technologies.

The PAYD system is considered to be an efficient tool in the effort to reduce traffic congestion, pollution and increase road safety. In comparison to the normal car insurance, the PAYD would enable every two people out of three, to save on insurance as they would be paying less. Per car saving for each of these people would be nearly $270. In addition to this PAYD would be helpful in reducing vehicular traffic by an amazing 8 percent which would further lead to a saving of nearly $50 billion to $60 billion annually that are spent on accidents and other damages related to the car. The oil consumption of US would go down by 4 percent and the vehicular emissions would be reduced by 2 percent.

34 states in the US provide PAYD insurance in some form or the other. Many countries like the Netherlands, Israel, United Kingdom, Canada, South Africa and Japan are also making this option available to their citizens. Some of the companies that operate in these countries and offer the PAYD insurance are listed as below:

Hollard: South Africa

Aviva: Canada

Aryeh: Israel

Coverbox: United Kingdom

MileMeter: Texas

Progressive insurance: it operates in states of Minnesota, Louisiana, Michigan, Maryland, Alabama, New Jersey, Kentucky and Oregon.

GMAC’s OnStar program: operates in nearly a dozen other states.