What is a "pay-as-you-go" insurance model?

The "pay-as-you-go" insurance model is characterized by a payment structure where premiums adjust based on actual use. This approach allows policyholders to pay for coverage that is directly proportional to their risk exposure or utilization of services. For instance, in this model, individuals or businesses might pay lower premiums during periods of low activity or lower risk and higher premiums when their use of covered services increases. This model encourages responsible usage and can be particularly beneficial for types of insurance where usage significantly impacts risk, such as auto insurance or health insurance.

The flexibility of a "pay-as-you-go" model contrasts with traditional models that require flat premiums regardless of usage or upfront payments, allowing policyholders to manage their costs more effectively based on their specific circumstances.