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Car Insurance Premium by the Mile

Written by Michele Wilmonen. Posted in Ask An Insurance Question, Research Last Updated: 11/17/2015

A new car insurance program being introduced only charges drivers car insurance premium for the amount of driving they actually do.

Manually Calculating Mileage on a Map

With the PAYD program, your insurance company will keep track of your mileage for you.

Would you drive less if your insurance company paid you to? This is the idea behind the pay-as-you-drive (PAYD) program. Your car insurance premium is based on the number of miles that you drive. While it is similar to discounts that are already offered by most insurance companies, the new car insurance premium discount that is being introduced  is more mile detailed.


With the PAYD programs you only pay the car insurance premium for the amount of miles that you drive (hence the name). To participate in this program you have to allow your insurance company to track you either through a device that you plug into your car or through information gathered by your agent as far as your odometer reading.

When you first start your policy you will guestimate how many miles you drive in a year and then your car insurance premium is based on that. If it is more than what you guessed, they will move you into a non-PAYD program. If your mileage is less, some of the insurance companies will refund you the portion of your car insurance premium that you technically didn’t use under this program.

What’s in it for the insurance companies? Simply, the less you use your car, the less chance you have of getting into a car accident that they have to pay out on.

(At this time California is the only state to have approved the insurance regulation on this type of insurance program)

Current Mileage Programs

You might be asking yourself what is the difference between this mileage use program and the one that you already have with your insurance company? The PAYD programs take the mileage estimates and use by 500 mile increments (minimum miles of 5,000).  Your insurance company looks at whether you are driving more or less than a certain number of miles each year, usually 7,500.

So if you tell them that you don’t drive a certain vehicle very much they will place you in the under 7,500 category.  If you commute 45 miles each way to work, they will put you in the above 7,500 mile category.

The other difference is that they don’t track your mileage, if you go over the 7,500 they would never know.  At the same time if you go under the 7,500 I wouldn’t hold my breath for a car insurance premium refund.

Benefits of the Program

Per Dave Jones, the California Insurance Commissioner, the PAYD programs are good for both the environment and also to reduce road congestion. The idea behind this is that if you are getting money back or cheaper car insurance premiums for not driving, you won’t drive.  If this program could be extended further to other states and drivers, the decrease of drivers on the road would have an impact in a number of ways.

One, less drivers on the road means a decreased chance of a car accident. Two, less car exhaust is always good for the environment. Three, less drivers on the road does also mean less traffic to have to fight through.

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Michele Wilmonen

Michele’s first introduction to insurance was working for a major insurance company as a file clerk and a mailroom supervisor in a regional office. She learned insurance directly from underwriters and claims adjusters from questions and also watching them do their job. Since then, she’s earned a number of insurance certifications from the Insurance Institute of America and also a Bachelor’s degree from the University of Idaho. She blogs at Car Insurance Guidebook.

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