How Do PAYD Auto Insurance Discounts Work?

pay as you drive

In recent times, several auto insurance companies have begun offering pay as you drive discounts. This type of discount is typically granted to individuals who are willing to have their driving habits monitored by the company. While some say the discount can be hugely beneficial for a policyholder, others say the loss of privacy isn’t worth the lower cost.

So what exactly is the pay-as-you-drive discount and how does it work? Why do some people think it compromises policyholders’ rights to privacy?

What Is PAYD and How Does It Work?

Pay as you drive discounts, also known as PAYD insurance discounts, have a relatively short history. Also known as mileage-based discounts because they typically offer drivers insurance discounts based on the number of miles they drive, they became more popular in 2009 after being introduced by Progressive Insurance.

PAYD varies depending on the insurance company, but in general, these discounts are offered to individuals who do the following:

  • Sign up for a specific company’s program
  • Allow the company to monitor driving behavior by either recording their own miles or having a tracking device installed in their car
  • Have behavior monitored from 30 days to 6 months, depending on the company

Most companies require that drivers be monitored during the specified period of time to determine how many miles they drive, during what times and in what areas they travel and more. Based on the information gathered, companies usually offer discounts of up to 30 percent off their standard rates.

Which Companies Offer PAYD Discounts?

In 2009, not many companies offered PAYD discounts in the United States. Progressive was one of few offering its program under what was known as MyRate.

Since that time, the name has changed to the SnapShot Program, but the idea is the same: Drivers can earn discounts of up to 30 percent by plugging a tracking device into their car and allowing the company to monitor driving behaviors for 30 days. After that time frame, a discount for the driver is applied.

Other companies are offering their own versions of the PAYD discount include:

  • GMAC Insurance: GMAC Insurance is among the first and largest insurance companies to institute a PAYD program. Implementing its Low-Mileage Discount in 2004 through its OnStar system, it provides subscribers with discounts of up to 54 percent in 34 states if they drive fewer than 15,000 miles annually.
  • MileMeter Auto Insurance: Drivers living in Texas can take advantage of mileage-based discounts offered through MileMeter Auto Insurance. The company’s discount is unique in that it doesn’t require drivers to install a tracking device. Instead, MileMeter allows you to purchase miles in advance that are tacked onto your vehicle’s current odometer reading. When you run out of pre-purchased miles, you simply purchase more.
  • State Farm Insurance:  In 2010, State Farm Insurance announced its Drive Safe and Save (DSS) voluntary insurance discount program for its California customers. Customers can earn discounts of up to 6 percent by driving a predetermined number of miles. In August, the company announced its new In-Drive device, which makes DSS easier for all of its customers, while include drivers in Colorado, Illinois, Ohio and Texas.
  • Travelers Insurance: In Oct. 2011, Travelers Insurance announced its new mileage-based driving discount known as IntelliDrive. The program offers a 5 percent discount to drivers who enroll then offers up to an additional 20 percent at renewal after the company monitors driving behaviors and other data via a tracking device.

Undoubtedly, there are benefits to mileage-based discounts, especially if you drive fewer miles than the average every year. But some feel that the benefits don’t outweigh privacy issues.

Why Privacy Is an Issue with PAYD

As PAYD programs have become popular in recent years, more noise has been made about the privacy rights drivers are giving up.

Because most pay as you drive programs require you to install a device in your vehicle, critics say insurance companies can become prejudiced against certain drivers, increasing their auto insurance rates based on data collected that has nothing to do with the discount.

Since drivers don’t know what data companies collect, nor are they sure about what prompts a company to increase premiums from term to term, discount participants are left at their insurer’s mercy as they accumulate information that could be used against them, or worse, sold to third party vendors.

Auto Insurance Discounts to Consider

If you find that the PAYD discount is not your cup of tea due to privacy issues–or you drive too many miles to qualify–there are other discounts to go after:

  • Automatic seat belt/air bag discount: Cars that come equipped with automatic seat belts and air bags often receive discounts from insurance companies so be sure to ask.
  • Anti-lock brakes discount: Insurance companies often offer discounts for additional safety features like anti-lock brakes that can help you better control your car during periods of rapid braking.
  • Loyalty/multi-policy discount: If you carry multiple types of insurance, including home and car with a company, you could receive a loyalty discount.
  • Good student discount: Some companies provide discounts to students who make good grades. Inquire with your company for more information.

The PAYD discount can be a great option for drivers who spend little time on the road and don’t want to pay top-dollar for minimal vehicle use. But if you feel this discount isn’t for you, it’s good to know there are other options available to help you save.