This article has been updated from a previous version.
Car insurance is not an inconsiderable expense. Of course, more inexperienced drivers and those with spotty driving records will pay more than experienced drivers with clean records.
That is a strong disincentive to urbanites who use public transit to get to work and want a car for evening and weekend outings only. But the cost of rental cars adds up for the occasional trip to the country, and schlepping the groceries home on public transit — or on foot with a bundle buggy — is few people’s idea of a fun Saturday afternoon activity.
Enter pay-as-you-go car insurance.
The Canadian Automobile Association (CAA) introduced its MyPace program in 2018. Drivers are charged a base rate for their first 1,000 kilometres, then incrementally more for each additional 1,000 kilometres, up to a maximum of 9,000 kilometres per year. However, starting November 15, CAA will raise the threshold to 12,000 kilometres per year for new customers. According to CAA, drivers can save from 1% (driving 11,000 kilometres a year) to 70% (driving 1,000 kilometres a year) on premiums with the program.
How does pay-as-you-go insurance work?
The model is simple: you prepay a modest base daily premium for pay-as-you-go car insurance. You’ll also pay an additional charge based on how much you drive. You’ll start with an initial 1,000 kilometres. As you drive, you will be charged for additional distances in 1,000-kilometre increments.
A telematics device in your vehicle or an app on your phone clocks the kilometres the car travels. The device only tracks distances, unlike those that monitor driving performance such as speeding or harsh braking (programs known as pay-how-you-drive). The device is linked to a web portal or mobile app so drivers can keep track of their mileage, and they are sent a warning when they are nearing the end of a 1,000-kilometre increment. At present, “pay-as-you-go” car insurance policies are typically capped at 9,000 kilometres a year, soon to be 12,000 kilometres per year with the upcoming changes from CAA. If you exceed this number, you’ll be switched to a non-usage-based policy and rate.
A U.K. variation on the theme from By Miles charges a base amount to protect vehicles when parked, then charges drivers by the mile for every trip they take. Similarly, Metromile, an American-based company, sets a monthly base rate at a fraction of what an ordinary insurance policy would cost, then adds a per-mile fee up to 250 miles per day.
Who can benefit from pay-as-you-go car insurance?
There are a variety of scenarios under which mileage-based insurance makes sense for customers:
- Those who work from home — an increasing number since the arrival of COVID-19 — or take public transit to work would benefit from mileage-based insurance.
- A family with several cars can pay a full annual premium on a commuting vehicle and restrict others to occasional driving.
- Urban drivers who only use their vehicles for trips to a cottage or vacation property, or occasional shopping trips, could benefit.
- Seniors or retired persons who do not commute to a workplace could also take advantage of this type of policy.
Other than the payment option, the pay-as-you-go policy works exactly like any other insurance policy. The claims process is the same as conventional insurance. The qualifying process considers driving records, claims histories, and traffic offences the same way a conventional policy does.
Why aren’t pay-per-kilometre auto insurance programs available in provinces other than Ontario, New Brunswick, Nova Scotia and Prince Edward Island? It is because they have not been approved to date by the respective provincial regulators. Insurance providers can use telematics to track mileage and driver behaviour to reward drivers with discounts, but not for use on a pay-as-you-go basis.
Pay-as-you-go insurance is a good option for drivers with low and predictable kilometre requirements; a sudden spike in mileage, for example, from changing to a job that is not conveniently accessible on public transit, could put you over the ceiling.
If you are on the 12,000-kilometre fence, you might want to look at a pay-how-you-drive program offered by other insurance providers. If you drive more than 12,000 kilometres a year, the discount you may earn (25% to 30% based on your driving behaviour) could be more worthwhile.
Regardless of how you go about it, you owe yourself the most affordable car insurance option available that provides you with the coverage you need.
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