The concept of paying only for what you use is common in many industries, but it’s a new trend in car insurance. Drivers pay different rates based on the miles they drive.

It’s being offered by at least one auto insurance company in 32 states, with more states expecting to approve it in the future.

Compare insurance quotes
Bankrate can help you find the best insurance quotes in your area.

Car insurance firms with pay-as-you-drive coverage include Allstate Insurance Co., GMAC Insurance, MileMeter (which only offers this type of insurance), Progressive Casualty Insurance Co. and State Farm Insurance — with other companies expecting to offer similar programs soon.

If you drive 15,000 miles per year or less, you are a candidate for pay-as-you-drive auto insurance. In most cases, insurers offer bigger savings to those who drive the least miles. If you drive 5,000 miles annually or less, you are likely to see the biggest drop in your insurance. Someone who drives 12,000 miles annually would see a smaller drop.

So how much savings can be had? Compared to a traditional policy offered by the same insurer, savings could be as little as 10 percent and as high as 50 percent.

The rules of these programs vary depending on the insurer, but they all require some form of mileage reporting. Usually, they are accompanied by a small device you plug into your car that is connected periodically or full time — depending on the car insurance policy — while you are participating in the program. With some insurers, driving more miles than planned could result in a financial penalty that essentially brings the driver back to the rate of the traditional policy.

Driving fewer miles may not be the only requirement for some of these auto insurance programs. In some cases, insurers base the savings on how you drive and when you drive. If you drive a lot at night, especially after midnight, you won’t get as big a discount and, in some cases, you won’t qualify for the program.

Some of the installed devices also measure how aggressive you are as a driver, logging conditions such as rapid acceleration and hard braking. Those who drive more aggressively will get a smaller discount and can be rejected from the program.

Despite the savings, you can find cheaper rates with other insurance programs. Sometimes traditional car insurance offers multiple discounts. When combining discounts given for multiple policies (such as auto and home through the same insurer), multiple cars and discounts for drivers in certain careers or with certain levels of education, sometimes traditional policies can be the better value. It’s important to compare quotes of traditional and pay-as-you-drive car insurance to determine which will ultimately cost less.

Ask the adviser

If you have a car question, email it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories.

Bankrate’s content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate’s Terms of Use.

Promoted Stories