Should you switch to pay-per-mile car insurance?

Pay-per-mile car insurance is a specialized coverage option that could save you money on auto insurance if you’re a low-mileage driver.

Pay-per-mile car insurance is different from traditional auto coverage: With pay-per-mile insurance, your insurer tracks the miles you drive and bases your rate on your monthly or daily mileage. If you don’t drive much — say, you’re retired or work from home — pay-per-mile coverage could be a good fit for you.

• What is pay-per-mile car insurance?
• How does pay-per-mile car insurance work?
• Pros of pay-per-mile auto insurance
• Cons of pay-per-mile auto insurance
• Can you save money with pay-per-mile car insurance?
• Which companies offer pay-per-mile car insurance?

What is pay-per-mile car insurance?

Pay-per-mile car insurance is a coverage option that uses your mileage to calculate your premium. It uses a formula that taps your daily or monthly mileage to determine your insurance rate. Because the number of miles you drive directly affects your premium, fewer miles mean a lower rate, making this type of coverage best for drivers who spend less time behind the wheel.

Some companies that offer pay-per-mile car insurance use telematics to track your mileage. Others take a more straightforward approach, requiring you to send a photo of your odometer each month.

How does pay-per-mile car insurance work?

Pay-per-mile coverage uses a formula with two components — a flat base rate and a daily or monthly mileage rate. The amount you pay for these two rates is determined using the same variables as traditional car insurance — driving history, location, vehicle type, age, gender and more. Pay-per-mile car insurance also allows you to access the same types of coverage as a traditional auto policy.

The big difference between pay-per-mile and traditional car insurance concerns the importance of mileage in calculating your rate.

With traditional coverage, insurers usually ask you to estimate your mileage, and they consider this figure in their overall rates. But mileage isn’t a central factor in the rate calculation.

Pay-per-mile coverage makes mileage a crucial part of rate calculation, and it does so transparently. Once you know your base and per-mile rates, you can estimate how much you’ll pay each month based on the miles you’ve driven.

Usage-based insurance differs from pay-per-mile coverage in a couple of ways.

With usage-based insurance, insurers monitor your driving behavior and use that data to determine your rate. Pay-per-mile coverage is a type of usage-based insurance, but not all usage-based coverages are pay-per-mile.

There are two main types of usage-based insurance.

• Driving-based — With this coverage, your insurer tracks and evaluates your driving habits, including how you brake and accelerate and what time of day you typically drive.
• Mileage-based — Mileage-based coverage looks solely at the number of miles you drive each month. Pay-per-mile insurance is a type of mileage-based coverage.

Pros of pay-per-mile auto insurance

Here are some possible benefits of selecting pay-per-mile car insurance.

• It may reduce your insurance bill: If you’re a low-mileage driver with traditional insurance, you may be able to reduce your premium with pay-per-mile coverage.
• It allows you to shape your monthly car insurance payment: Because it’s mileage-based, pay-per-mile coverage puts you in the driver’s seat regarding your monthly premium. If things are tight during a particular month, you may be able to reduce your payment by limiting your driving.
• It may provide app-related advantages: Some pay-per-mile insurers provide telematics apps that do more than track your mileage. For example, Metromile’s app issues street-sweeping alerts that can help you avoid tickets and provides tracking that can help you find your lost or stolen car.

Cons of pay-per-mile auto insurance

Pay-per-mile coverage has some potential downsides to consider.

• It may not be available in all states: Some pay-per-mile providers limit coverage to certain states so this type of policy may not be available in your neck of the woods.
• It may not be available for certain cars: Some pay-per-mile companies use a device to track mileage. This device may not be compatible with all vehicles. For example, Nationwide notes that its telematics device isn’t compatible with some hybrids, certain diesel-powered cars and vehicles made before 1996.

Can you save money with pay-per-mile car insurance?

It may be possible to save money with pay-per-mile car insurance if you’re a low-mileage driver. MileAuto estimates it can save low-mileage drivers 30% to 40% off the rates paid for traditional auto insurance.

Because many of the same variables used in traditional auto insurance apply to a pay-per-mile policy, rates will vary from one policyholder to the next.

For a monthly calculation, the basic formula used in pay-per-mile coverage looks like this:

Monthly base rate + (per-mile rate x number of miles driven)

Suppose you currently pay $150 for traditional car insurance each month and drive 600 miles monthly. If you choose a pay-per-mile policy with a base rate of $40 and a per-mile rate of 10 cents, you’d have a monthly payment of $100 ($40 base rate plus $60 for per-mile expenses). That means pay-per-mile coverage could save you $50 per month in insurance costs.

If you’re thinking about pay-per-mile coverage, get quotes for the base and per-mile rates. Then you can estimate your monthly mileage and use the pay-per-mile coverage formula to determine if you’ll save money compared to your current car insurance policy.

Which companies offer pay-per-mile car insurance?

Though insurance companies consider mileage when calculating your rate, many providers don’t offer pay-per-mile coverage. This coverage caters to low-mileage drivers, so it’s a specialized type of policy.

Here are three companies offering pay-per-mile car insurance.

Take note: If you’re interested in this type of coverage, you might need to check whether it’s available in your state.

Metromile

Metromile is a pay-per-mile insurer offering these coverages:

• Comprehensive
• Liability
• Collision
• Underinsured and uninsured motorist
• Personal injury protection
• Medical payments
• Roadside assistance

Mile Auto

Unlike some pay-per-mile providers, Mile Auto doesn’t use an app or telematic device to track mileage. Instead, drivers self-report their mileage by submitting a photo of their odometer each month. This company’s coverage list includes …

• Collision
• Comprehensive
• Liability
• Rental car reimbursement
• Roadside assistance

Nationwide

Nationwide has an insurance program called SmartMiles that provides pay-per-mile coverage. This program offers the same coverage options as a traditional Nationwide auto insurance policy. The list of coverage options includes …

• Comprehensive
• Collision
• Liability
• Uninsured and underinsured motorist
• Personal injury protection
• Medical payments
• Rental car expense
• Gap insurance
• Towing and labor

What’s next?

If you’re interested in getting pay-per-mile insurance, track your mileage for a month to ensure you have an accurate monthly mileage estimate. This step is vital since this coverage offers the most benefit to low-mileage drivers. Then get quotes from pay-per-mile providers and use your mileage to determine if this coverage could save you money.