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- Pay-per-mile car insurance charges premiums based on how many miles you drive.
- Pay-per-mile insurance policyholders still pay a base rate in addition to a per-mile rate.
- Pay-per-mile car insurance is best for infrequent drivers with predictable monthly milages.
Pay-per-mile insurance is a type of car insurance policy that calculates your premiums based on the miles you drive. If you’re a low-mileage driver (e.g., those who work from home, retirees, students, or people with short commutes), consider this coverage to save money on your insurance policy.
How Pay-Per-Mile Insurance Works
Base Rate + Per-Mile Rate
The standard car insurance premium considers mileage to calculate your initial premiums. It even provides discounts for low mileage drivers and vehicle use for pleasure over work commute. Once your insurer assigns your premiums, it stays the same throughout your policy’s term, no matter how many miles you drive.
With pay-per-mile car insurance, you pay as you go instead of paying a fixed premium. Insurers calculate your premiums using a base rate and per-mile rate. Like the standard insurance, base rates are determined using your age, ZIP code, driving history, coverage options, etc. Your premiums then fluctuate based on your per-mile rate or cost for each mile driven.
Mileage Tracking
Pay-per-mile insurance uses the following tools to track your miles:
- Mobile app: Many insurers offer a mobile app to manage your policy and monitor driving activitiy.
- Plug-in device: Companies may give you a device to plug into your car’s OBD-II port that measures mileage.
- Odometer photos: Insurers may offer the option to record your mileage by taking monthly pictures of your odometer.
Pay-Per-Mile Premium Calculation
The formula for pay-per-mile insurance is as follows:
Monthly premiums = base rate + (miles driven in a month × per-mile rate)
For example, say your base rate is $30, your per-mile rate is $0.05, and you drive 500 miles in a month. Then, your rate for that month will be $55.
Benefits of Pay-Per-Mile Insurance
Pay-per-mile insurance has several unique benefits, such as its:
- Cost savings: Low-mileage drivers can lower their premiums by switching to mileage-based insurance.
- Fair pricing: Unlike the standard insurance, you only pay for the miles you drive.
- Flexibility: If your driving habits change frequently, you can save money during periods you drive less.
- Usage awareness: Your mobile app and the plug-in device can monitor your behavior on the road and provide feedback to help you become a safer driver.
Drawbacks of Pay-Per-Mile Insurance
Pay-per-mile insurance has disadvantages to consider like its:
- Expensive for high-mileage drivers: A traditional policy might be cheaper if you drive very regularly.
- Variable costs: Your premiums change depending on how much you drive, making car insurance trickier to budget for each month.
- Privacy concerns: Your insurance company may collect data such as your location and driving habits. You may opt out if you have concerns about sharing private information with your insurers.
- Limited availability: Not all insurance companies offer pay-per-mile insurance. Even if they do, many limit coverage to select states.
Who is Pay-Per-Mile Insurance Best For?
Low-Mileage Drivers
Pay-per-mile insurance may be worth it for those who drive less than 10,000 miles per year. You may be a low-mileage driver if you:
- Work from home
- Are retired
- Use public transportation
- Are a student
- Have short commutes
People with Predictable Driving Habits
Unlike the standard insurance, pay-per-mile premiums vary monthly, so it may be harder to predict how much you’ll pay month-to-month. However, if your mileage stays consistent (and low), you can reasonably estimate and budget for insurance costs, making pay-per-mile insurance appealing.
Those Comfortable with Mileage Tracking
Pay-per-mile insurance may be a cost-saving option if you’re okay with your driving data being collected. Some insurers allow you to track your miles via odometer pictures. This means your insurer only receives mileage information.
How to Choose the Best Pay-Per-Mile Insurance
Compare Rates
Comparing insurance quotes helps you find the best rates on the coverages you need. The Insurance Information Institute recommends obtaining quotes from at least three insurance companies.
When shopping for pay-per-mile policies, you’ll want to compare base and per-mile rates. Then, choose the one with the lowest quote. During your comparison, ensure all other factors are similar across each policy, like coverage types, deductibles, and limits.
Consider Your Needs
Before buying a policy, you’ll want to fully understand your needs as a driver. If you have a nicer car, you may want comprehensive or collision coverage. However, if you’re not going to be driving very often, you may only need the minimum car insurance required by your state. Be sure to compare companies that offer those coverage options.
Additionally, consider how providers track your mileage. If you’re not comfortable with an insurance company tracking your location or installing a device in your car, you may want to find a company that only requires odometer photos.
Research Customer Reviews and Ratings
Customer ratings and reviews provide insight into a company’s reputation. Customer review sites include Trustpilot and the Better Business Bureau score companies based on verified user reviews.
Customer ratings from third-party rating agencies measure a company’s reputation in a certain area compared to the industry standard. Common rating agencies include:
- AM Best: Measures a company’s financial strength.
- JD Power: Ranks companies based on customer satisfaction, which is measured using various factors like trust, price for coverage, and ease of doing business.
- NAIC Complaint Index: Measures a company’s volume of complaints compared to its size.
Browsing these sites and agencies will go a long way toward finding the best car insurance for you.
Pay-Per-Mile Insurance FAQ
How much you can save on pay-per-mile insurance depends on how much you drive. You can typically save more by driving less. Comparing quotes can help you find the lowest price on your insurance.
Pay-per-mile insurance providers track your mileage via mobile apps, plug-in devices, or odometer photos. Mobile apps and plug-in devices can also have advanced features like tracking your driving habits. If you’re concerned about privacy, it may be helpful to find a company that offers mile tracking via odometer photos.
If you go on a road trip, many pay-per-mile companies won’t charge above its daily or monthly mileage caps. For example, Allstate Milewise has a 250-mile cap in most states. If you exceed it, Allstate car insurance covers the additional miles.
Pay-per-mile insurance primarily calculates your premiums based on the number of miles you drive. Usage-based insurance rewards you (usually with a discount) for good driving. It monitors behaviors such as speed, braking, and phone use. These programs may use similar tracking technology but aren’t the same.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.