Everyone is trying to find ways to save a few dollars these days. Refinancing a home can save on payments, combining home and auto insurance can also be a way to save money. Just being aware of spending habits could lead to considerable savings in some cases. Another are that may not be so obvious is “pay as you drive” auto insurance. So, what is “pay as you drive” auto insurance anyway, and how does it work?

Simply put, the term “pay as you drive” is self-descriptive, you pay at a certain rate as you drive. Here’s a brief explanation of how it works.

Auto insurers set rates for use-based insurance (UBI) by monitoring your mileage, driving speed or related activities through electronic devices or smartphones and apps connected to your car’s diagnostics port. That’s different from traditional policies, whose rates are based on actuarial studies of historical data on demographics and risk factors such as driving records.

According to some studies there may be as many as 3 million cars and trucks insured this way right now. Progressive, which sells more UBI policies than any other auto insurer, says its Snapshot plan accounts for 30 percent of customers who buy its policies directly. From 2012-’13, Snapshot premium revenue grew 50 percent, to $1.5 billion, according to the company.

If you’re someone who doesn’t do a lot of driving this may be something to consider. Typical rates are predicated on people driving 12,000 miles a year. Prove you only drive 6,000 or 7,000 and you may be in line for a premium rate that may save you significant money.

Maybe this is the way insurance will be done in the future. The driving public’s growing comfort level with onboard telematics systems for GPS, entertainment, safety and maintenance may help ease the way for UBI policies, according to industry experts.