Unlocking the Benefits of Pay-Per-Mile Car Insurance
*Is there a more affordable car insurance solution than the conventional coverage for your seldom-driven vehicle? Pay-per-mile insurance could potentially save you a substantial sum, with some providers promising savings of up to 40% or more. However, it's only advantageous if you genuinely drive infrequently.*
Demystifying Pay-Per-Mile Insurance
Pay-per-mile car insurance operates on a unique premise: you pay for your coverage based on the number of miles you actually drive. Consequently, it's most suitable for individuals who don't use their vehicles frequently.
It's important to distinguish pay-per-mile insurance from the low-mileage discount offered by some auto insurers. While a low-mileage discount provides a percentage reduction on the cost of a traditional policy, pay-per-mile car insurance calculates your rate according to your actual mileage.
Who Stands to Gain from Pay-Per-Mile Car Insurance?
Pay-per-mile insurance primarily benefits those who drive sparingly, including individuals who:
- Work from the comfort of their homes.
- Are currently enrolled in college.
- Utilise mass transit, walk, or employ alternative means of transportation.
- Own a secondary vehicle that sees little use. Tip: Consider creating a separate pay-per-mile policy exclusively for this vehicle.
On average, Americans cover approximately 13,500 miles per year, as reported by the U.S. Department of Transportation's Federal Highway Administration. Nevertheless, it's challenging to determine the threshold for reaping the advantages of pay-per-mile car insurance.
Mile Auto's website suggests that if you drive less than 10,000 miles annually, you're likely overpaying for traditional auto insurance. Meanwhile, Nationwide recommends its SmartMiles pay-per-mile insurance for those who drive less than 8,000 miles each year.
Understanding the Mechanics of Pay-Per-Mile Car Insurance
Customers of pay-per-mile insurance pay a fixed monthly base rate in addition to a variable monthly mileage rate that fluctuates based on your actual miles driven. If your monthly mileage varies, your rate will correspondingly adjust.
To calculate your monthly base rate, insurers typically consider factors such as your gender, age, and the make and model of your vehicle, mirroring the approach of traditional car insurance quotes. Importantly, despite the different structure, pay-per-mile car insurance still provides the same coverage options, including comprehensive and collision insurance.
Tracking Your Driving Habits
Insurers employ technology known as "telematics" to monitor your driving habits, utilising a dedicated app or other tracking devices. Telematics can also record risky driving behaviours, such as hard braking or rapid acceleration. Some pay-per-mile programs, like Nationwide SmartMiles and Metromile, utilise these tracked behaviours to determine rates or offer discounts. Safer driving habits can lead to lower premiums. Note: In 2022, Lemonade officially acquired Metromile, which continues to offer pay-per-mile insurance.
For individuals who are uncomfortable with sharing their data, Mile Auto allows you to purchase pay-per-mile insurance without a plug-in device for tracking your driving habits. Instead, you simply need to provide the insurer with a monthly photo of your odometer.
Is Pay-Per-Mile Insurance a Money-Saver?
The cost of pay-per-mile insurance varies from one provider to another and depends on your mileage. Just like traditional auto insurance, your monthly base rate is determined by your driving history and personal characteristics.
To ascertain potential savings, you shouldn't automatically take the insurer's word for it. You'll need to do the maths after receiving a quote to determine how much you can save in comparison to your current plan.
To estimate your pay-per-mile insurance expenses, you can use the following formula: Monthly base rate + (Per-mile rate x Approximate number of miles you drive each month).
For example, if your pay-per-mile quote indicates a monthly base rate of $34 and a per-mile rate of 5 cents, and you typically drive 800 miles a month, you can calculate your monthly rate as follows: $34 + (0.05 x 800) = ($34 + $40) = $74.
It's important to note that this is just an estimate, and your actual monthly costs will depend on your specific mileage.
If you'd rather not manually track your mileage, consider using Metromile's Ride Along program. This feature allows Metromile to monitor your driving habits for about two weeks through their app, providing you with an estimated bill based on your driving. Using the Ride Along feature doesn't obligate you to switch to Metromile.
Providers of Pay-Per-Mile Insurance
Only a select number of insurance companies offer pay-per-mile insurance as an option. Some, like Metromile, specialise in this unique form of coverage, while a few major insurers, such as Allstate, also provide a per-mile option.