How Does Pay-Per-Mile Auto Insurance Work?

If you are not driving your vehicle much you are a lot less likely to get involved in an accident and submit a claim. However, traditional vehicle insurance policies may not offer you enough savings based on low mileage and therefore motorists may need to look for innovative solutions like pay-per-mile car insurance to prove they don’t drive as much and get the maximum premium savings. If you don’t want to give up an automobile even though you only drive a few miles a year and drop essential coverage to save money, this post explains the type of a policy that might be a better solution for you.

In recent years, the insurance industry has witnessed the emergence of innovative approaches, and one such option gaining popularity is pay-per-mile automobile insurance. This unique insurance model takes into account the number of miles driven by an individual and offers customized coverage and rates accordingly.

Pay-per-mile vehicle insurance, as the name suggests, charges policyholders based on the number of miles they drive. It is a usage-based insurance model that provides a fair and personalized premium calculation, where individuals who drive less pay lower premiums compared to those who drive more.

How does it work? Pay-per-mile auto insurance utilizes telematics technology, often in the form of a small device plugged into the vehicle’s diagnostic port or through a mobile app. This technology tracks the distance traveled by the insured vehicle, collecting data on mileage and driving behavior. Insurance companies use this data to calculate premiums, taking into consideration factors such as the number of miles driven, time of day, and driving habits. If you are looking for pure mileage monitoring Mile Auto offers pay-per-mile policies purely based on odometer reading.

Typically, the company calculates a low base rate using the same factors just like a traditional policy such as age, driving history, credit score, vehicle details and location. Then, they add monthly premiums on top based on the vehicle usage. So, if you don’t use your vehicle much, you get charged a little on top of the fixed base rate and you get charged more in the months you use your automobile more. Therefore, you may need to make sure that you drive much less for choosing these policies to be worthwhile.

As a reference, drivers travel around 13,476 miles per year on average, according to the U.S. Department of Transportation’s Federal Highway Administration (FHWA). However, you may need to drive less than 8,000 miles a year to consider pay-per-mile vehicle insurance policies, according to the websites of the companies offering these policies.

Although pay-per-mile car insurance may sound a lot different, they still offer the usual coverage options available with a typical policy like Collision, Comprehensive and other add-ons, depending on the company.

Popularity and availability: Pay-per-mile insurance has been gaining traction in recent years, particularly in regions with higher population densities and areas where individuals tend to rely on alternative modes of transportation. While it was initially offered by a few niche insurance providers, like Metromile, more traditional insurers like State Farm (Milewise) and Nationwide (SmartMiles) are now also embracing this model to cater to the evolving needs of policyholders.

Alternative to pay-per-mile automobile insurance: Where these policies aren’t available, motorists may look into more commonplace usage-based programs offered by companies like State Farm and Progressive. Usage based policies take mileage driven into account and adjust the premium accordingly too.

The qualification process for pay-per-mile insurance is often straightforward. Insurers may require applicants to provide information such as their name, address, vehicle details, estimated annual mileage, and driving history. Often, a telematics device or mobile app may need to be installed or activated to monitor driving patterns accurately.

Who can benefit the most from pay-per-mile insurance? These policies are geared towards motorists who drive fewer miles annually. This includes those who work from home, rely on public transportation, live in urban areas, have a short commute or are retired. Additionally, people who own second or occasional-use vehicles that are driven infrequently can also benefit from this insurance model. By paying only for the miles driven, these individuals can potentially enjoy significant cost savings compared to traditional insurance plans.

Advantages of pay-per-mile car insurance:

  1. Cost savings: Pay-per-mile insurance offers potential savings for low-mileage drivers by aligning premiums with actual usage. It eliminates the need to pay for coverage based on estimated annual mileage, which may result in overpaying for insurance. Although traditional insurers may offer flat rate discounts for people who drive less, usually these discounts are minimal so motorists may need to look for these specialized programs to reduce their premiums significantly since they drive much less than an average driver.
  2. Customized coverage: Policyholders receive personalized coverage based on their driving patterns and habits. This tailored approach ensures that individuals are not paying for unnecessary coverage they might not need.
  3. Incentives for safe driving: Pay-per-mile insurance often encourages safer driving habits. Since driving behavior is tracked through telematics technology, individuals have an opportunity to improve their driving skills and potentially qualify for additional discounts.

Shortcomings of pay-per-mile auto insurance:

  1. Limited availability: Pay-per-mile insurance is not yet widely available in all regions, and options may be limited compared to traditional insurance plans. However, as the popularity of this model grows, more insurance providers are expected to offer it in the future.
  2. Privacy concerns: The use of telematics technology raises privacy concerns for some individuals. While insurers typically focus on collecting data related to mileage and driving behavior, there may be concerns about data security and potential misuse of personal information.

Potential savings and why choose pay-per-mile insurance: The obvious reason for choosing these policies is that they can lead to significant savings for individuals who drive fewer miles annually. According to studies, low-mileage drivers can save up to 30% or more on their insurance premiums by switching to pay-per-mile policies. This savings potential, combined with the opportunity for customized coverage and the ability to improve driving habits, makes pay-per-mile insurance an attractive choice for many.

Nevertheless, not everyone may save as much and it may not be worth the effort for some people who end up driving more miles than they intended. Motorists are advised to monitor their vehicle usage before considering these policy options. And some of the insurers offering pay-per-mile vehicle insurance options, allow the interested drivers to test the program by monitoring their driving for a short period of time to see if they could benefit from these programs and save money. If they aren’t happy at the end of the trial, they can return the telematics device without any obligation, giving them a good chance to consider the policy product.