If you don’t drive very often, you could be saving on car insurance.
Most of us understand how traditional car insurance works. You pay an annual premium to protect yourself and your vehicle should an unforeseen accident occur. Generally, that fee remains the same year-to-year, but can vary depending on where you live, your age, and of course, whether you make any claims. But what if you’re not an everyday driver or you have family members who do little to no driving? Do you really need to be paying an annual fee? Not necessarily.
Pay-as-you-go insurance falls under the umbrella of usage-based insurance , which uses telematics to track how a person drives and then either reward or penalize them in the form of discounted or higher premiums. There are subtle differences between the two , however. While usage-based insurance focuses on how you drive (taking corners quickly, braking hard, etc.), pay-as-you-go insurance centres around how much you drive.
The Canadian Automobile Association (CAA) was the first company to offer a pay-as-you-go system in Canada when it began offering its MyPace program to Ontario drivers in 2018.
Under a pay-as-you-go/pay-as-you-drive policy, the drivers pre-pay a daily premium with an additional fee based on how much they drive. It starts with 1,000 kilometres and as you continue to drive, a charge is added for each additional 1,000 kilometres. CAA increased the limit to 12,000 kilometres as of November 2021.
Drivers are required to plug a telematics device into their car that tracks driving distance, time, and speed. Alternatively, customers can download the CAA Connect App that monitors a vehicle’s trip data using an onboard GPS antenna. CAA’s website says customers cannot combine the programs, meaning you are either a MyPace customer or a CAA Connect customer, but not both.
The device provides drivers a warning when they are coming close to the end of a 1,000-kilometre increment. However, not all cars are compatible with the device, such as electric cars, cars made before 1997, and diesel vehicles made before 2005.
How much money can I save with pay-as-you-go-insurance?
The less you drive, the more you can save with a pay-as-you-go policy — anywhere between two and 70% per cent when compared to a regular car insurance plan. As you approach the 12,000-kilometre limit, the savings decrease. Often, policies will charge you automatically for the next 1,000 kilometres when you hit about the 950-kilometre mark. If you stay under the 1,000-limit, it can be carried over to your next billing period.
Even though you are tracked for distance, the rate you pay per kilometre is still based on traditional factors, such as your driving record and years of driving experience.
Is pay-as-you-go insurance right for you?
The benefit of pay-as-you-go car insurance is really for drivers who don’t drive all that often. If you exceed the 12,000-kilometre limit, costs would likely be similar, if not the same, as a traditional car insurance policy. The pay-as-you-go scheme is best suited for:
- People who mostly use public transportation to get around
- Those who work from home, which is especially relevant during the pandemic
- Families that only need occasional driver policies
- Seniors or people who do not commute to work, but still need vehicles.
So far, pay-as-you-go insurance is available only in Ontario, New Brunswick, Nova Scotia, and Prince Edward Island; the other provinces have not yet approved the system.
Should you get into a collision, the claims process for pay-as-you-go insurance remains the same as with regular car insurance. Ultimately, the system can work to your advantage if you can keep kilometer's to a minimum. During the pandemic, many drivers have shifted over to this system , and many more may do so given the new realities of remote work as an option.
If you’re on the fence about whether to try pay-as-you-go insurance, keep in mind that it doesn’t take too much commuting to hit the 12,000 mark. So make sure it works for your driving needs. As always, it’s best to talk to your broker or insurance provider about the pros and cons of any change to your policy.