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Low-mileage drivers are finding new opportunities to save big on auto insurance rates.

A handful of companies now offer pay-as-you-drive car insurance that charges motorists based on how much they drive and other factors.

For drivers, basing rates on the mileage driven "empowers them over their auto insurance rates," says Richard Hutchinson, the general manager of usage-based insurance for Progressive.

Pay-as-you-drive insurance can be a boon for those who drive fewer than 15,000 miles a year. Examples of drivers who could benefit include:

  • Someone in an urban area who takes public transportation to work.
  • A retiree who typically makes short trips to the store and back.
  • A suburban mom who only uses the car to take the kids to school and soccer practice.
  • Someone who works from home.

Pay-as-you-go insurance can give such drivers discounts that run well into the double-digit percentages.

Big car insurance discounts

Progressive's pay-as-you-drive program is called Snapshot. It provides discounts of up to 30% per year off its regular car insurance rates. Snapshot is available in most states (find out if yours is one of them here). Because each state sets its own insurance regulations, the program needs approval on a state-by-state basis.

Snapshot provides discounts on auto insurance based on miles driven, when the car is driven and how it is driven. Driving between midnight and 4 a.m. -- the peak time for accidents -- and making sudden starts and stops can impact rates.

Snapshot works only for cars built in 1996 or later because a monitoring device must be plugged into the onboard diagnostic port. The device monitors mileage, time of day when the car is driven and driving style. There is no GPS, so it doesn't track where the vehicle is driven.

GMAC Insurance, in collaboration with OnStar, offers a discount of up to 35% for those who have a GM vehicle equipped with OnStar, depending on annual mileage.

The less you drive, the higher the discount, says Tim Hogan, GMAC's vice president of national accounts.

Government, insurance companies team up

A 2008 study by the Brookings Institution, a Washington, D.C., think tank, found that two-thirds of all households nationwide would save money by purchasing pay-as-you drive insurance.

Recently, the Federal Highway Administration awarded grants to a number of states with proposed projects aimed at easing traffic congestion. Among them was a grant of almost $2 million to the Texas Department of Transportation to test pay-as-you-drive insurance by working with insurer MileMeter, based in Dallas.