Pay-Per-Mile Car Insurance: How It Works & If It's Right for You
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The auto insurance industry has seen a rise in alternative policies over the last several years. This increase doesn't mean the traditional policy is disappearing, but it does point to a growing interest in custom and more transparent insurance coverage.
Pay-per-mile car insurance is one such alternative gaining popularity among infrequent or low-mileage drivers. The policy typically includes base rates and a per-mile fee. Drivers only pay for the distance they travel, meaning the policy may offer lower premiums and greater flexibility for infrequent drivers, especially those with practiced safe driving skills.
Despite the potential advantages of a pay-per-mile policy, it's not for everyone. Many drivers have tracking concerns, and others drive too often and too far for the policy to be beneficial. Still, if pay-per-mile insurance is available in your area or through your insurer, it's worth considering.
How Pay-Per-Mile Insurance Works
Pay-per-mile care insurance is an example of usage-based insurance. Drivers pay a monthly base rate and a per-mile charge. The base rate is a fixed monthly fee. It remains constant regardless of the number of miles driven. Factors like age, driving history, and location help determine base rates.
Mile rates are variable, ranging from $0.02 to $0.10 per mile. The mile policy cost depends on the insurer.
Calculating Monthly Cost
So, how does pay-per-mile car insurance work, and how much does it cost? As a usage-based policy, the monthly premium fluctuates and depends on the miles driven. A typical monthly premium formula:
Base Rate + (Miles Driven x Per-Mile Rate) = Monthly Premium
Imagine your base rate is $30 and per-mile rate is $0.05. Over the last month or billing period, you drove 400 miles. Multiply the miles per month by the per-mile rate: 400 x $0.05 = $20. Now, add the result to your base rate to arrive at your cost for the month: $30 + $20 = $50.
Tracking Miles and Driving Habits
The best pay-per-mile car insurance is accurate and fair, which requires tracking. Some drivers are uncomfortable with an insurance company monitoring their movements and behaviors. Unfortunately, many insurers find it necessary to use telematics devices — tools that plug into a car's OBD-II port and track mileage automatically — or mobile apps to monitor behaviors like speeding or hard braking.
Some insurers, though not the majority, allow drivers to submit monthly odometer photos to report mileage. Without tracking driver behavior, these companies may offer more expensive or less beneficial policies to offset their risks.
Who Benefits Most From Pay-Per-Mile Insurance
Pay-per-mile car insurance represents a cheap car insurance option for the right type of driver. It works best for specific driver profiles, such as low-mileage drivers, public transportation users, and those with flexible work schedules.
Low-mileage drivers are individuals who drive fewer than 6,000 miles per year. The group typically includes urban or city dwellers because driving is less common in areas where residents have proximity to public transport and amenities.
People who rely primarily on public transportation, such as buses, trains, or subways, for daily travel are prime candidates for car insurance pay-per-mile policies. This driver profile usually includes city commuters and environmentally conscious individuals looking to reduce their carbon footprint.
Finally, people with flexible work schedules, such as remote workers and freelancers, may benefit from pay-per-mile policies. The insurance provides adaptable coverage, ideal for their fluctuating driving needs.
Cost Comparison: Pay-Per-Mile vs. Traditional Insurance
So, the big question is: How much is pay-per-mile car insurance compared to traditional insurance? The answer depends on the policy coverages, like collision and comprehensive coverage, that both offer. It also depends on individual driving habits.
With a traditional policy, a driver receives a fixed premium based on factors like location, vehicle, and driving history. The policy rarely limits the number of miles or tracks them. On average, drivers pay between $716 for minimum liability coverage and $2,386 for full coverage, including collision coverages, annually for traditional policies.
Pay-per-mile car insurance policies are variable, so monthly premiums fluctuate. It's the fluctuation that makes these policies so appealing to low-mileage drivers. If you drive fewer than 10,000 miles per year, you can save a significant amount of money. For example, with a monthly premium or base rate of $30 and a per-mile rate of $0.05, you'd pay $360 for your annual base ($30 x 12), $500 for your annual per-mile rate (10,000 x $0.05), and $860 for your yearly cost ($360 + $500). That's a savings of $1,526 ($2,386 - $860) compared to the average cost of traditional full coverage.
The savings could be greater depending on your insurer. Some companies cap mileage with a daily rate. For example, an insurance company might cap your per-mile rate at 250 miles daily, meaning anything over that doesn't count toward your premium in certain situations. That means your costs might be less if you rack up most of those 10,000 miles during a road trip.
Major Insurers Offering Pay-Per-Mile Car Insurance
Not all insurers offer pay-per-mile policies. The major insurers that do include:
- Allstate Milewise
- Esurance pay-per-mile
- Metromile
- Nationwide Insurance SmartMiles
Potential Drawbacks of Pay-Per-Mile Insurance
Pay-per-mile insurance can include full-coverage car insurance like traditional car insurance and offer many of the same benefits. Still, it comes with potential drawbacks, including:
- Limited availability
- Vehicle compatibility issues
- Increased costs for risky drivers
- Privacy concerns
Pay-per-mile policies are best for low-mileage drivers. People who drive more than 10,000 miles per year might benefit more from a standard policy.
Factors That Affect Pay-Per-Mile Insurance Pricing
The primary factors that affect pay-per-mile insurance pricing are the base and per-mile rates. However, other contributing factors are mileage caps, insurance company policies, and coverage options.
How Driving Habits Influence Your Pay-Per-Mile Rates
Your driving habits can also affect your pay-per-mile rates. For example, if you drive during high-risk hours, such as late-night or rush hours, your rates are likely to be higher. An insurer may also penalize drivers who speed or have bad braking habits, considering these risky behaviors.
Get Affordable Car Insurance Tailored to Your Needs
Whether you're looking for pay-per-mile car insurance or a traditional policy, it's essential to consider your driving habits and needs. The EverQuote comparison tool can let you compare different policies from top insurers to find your best match.