Pay-Per-Mile Car Insurance May Not Save You as Much as You Think

If you drive fewer than 10,000 miles a year, you may save money using pay-per-mile auto insurance. According to Mile Auto, drivers save 30% - 40% off their insurance rates with this type of policy, but it’s not for everyone.

If you’re considering this type of policy, there are several things you should know,

For example, you won’t save any money on a pay-per-mile policy if you drive a lot, and some people have privacy concerns about the telematics device the insurance providers use to gather your driving data. But for the right drivers, pay-per-mile could be a money-saving hack.

What is pay-per-mile car insurance?

Insurance companies base pay-per-mile car insurance on the number of miles you drive rather than on a standard six-month or annual premium rate. Driving fewer than 10,000 miles per year may be worth investigating pay-per-mile policies to save money on car insurance.

Like anything that seems too good to be true, I investigated how insurance companies charge less when you pay per mile.

Here’s the catch.

You must install a device under the steering column of your car that tracks your mileage every time you drive, or some companies require you to use their app to track miles driven.

Insurance companies use this information to verify the miles driven to calculate your monthly payment based on an established base rate plus a per-mile rate.

How does pay-per-mile work?

Pay-per-mile car insurance works by using telematics, a method of collecting data about your driving habits. Many companies rely on data from a small device installed in your onboard diagnostic port (OBD-II), usually found under the steering column of cars manufactured after 1996.

While pay-per-mile car insurance premiums are somewhat unpredictable, I do like that you have a base monthly or daily rate that doesn’t change; the miles driven affect the fluctuations in your monthly premium.

Insurance companies use similar factors that affect your car insurance rates for pay-per-mile insurance that they would use if you purchased traditional auto insurance with semi-annual premiums. These factors may include:

• Age
• Gender
• Driving record
• Credit score (in allowed states)
• Location
• Vehicle make, model, and year

They will then assign a per-mile rate, which each insurance company determines differently. For example, Milewise by Allstate uses information from your driving habits to determine your rates. They state that for the lowest rates, avoid excessive speed, sudden braking, and late-night driving between the hours of 11 PM and 4 AM.

For example, let's say your monthly base rate is $30, and your established per-mile rate is $0.06. In March, you drive 700 miles; in April, you drive 850 miles. Your monthly rates would be:

• March: $72
• April: $81

How do you pay?

Just like each insurance company offers different policies, they have different procedures for payment.

Some companies send you a bill detailing the previous month’s mileage and total with a due date for payment. Other companies, like Allstate, require an initial deposit and then deduct your mileage and base rate from that amount. When you hit a minimum-required account balance, they automatically charge your linked credit or debit card to replenish the deposit amount.

Who is pay-per-mile car insurance for?

Pay-per-mile insurance policies are for those who don’t drive frequently, this usually includes

• Stay-at-home parents
• Retirees
• Drivers with a short daily commute
• Drivers with a second car
• College students

Itisn’t for everyone.

According to the Federal Highway Administration, the average American drives 13,476 miles annually. If you drive this many miles or more each year, then a standard, unlimited mileage policy may be a better option.

Even if you drive less than the national average, your mileage might still be too high for pay-per-mile insurance. The pay-per-mile policies are usually most effective for people who drive well under 10,000 miles a year.

Pay-per-mile car insurance availability

Several car insurance companies, including some well-known names, offer pay-per-mile policies. I always suggest getting multiple insurance quotes and comparing coverage types before you commit to a policy. I also suggest comparing a pay-per-mile policy to a traditional policy based on the average miles you drive.

Allstate

Allstate offers the Milewise program, which gives customers the option of either a pay-per-mile or unlimited miles policy while using their telematics device. Pay-per-mile customers pay a daily base rate plus a per-mile rate, while unlimited customers pay a higher daily base rate.

The Milewise tracking device pairs with the Milewise app, which tracks your miles and driving behavior. The app will provide feedback on your driving and record your monthly mileage.

The Milewise program is only available in:

• Delaware
• Idaho
• Minnesota
• Washington
• West Virginia
• Wisconsin

Nationwide

The Smartmiles® program through Nationwide works with a telematics device installed under your car's steering column that pairs with the Smartmile app. The set base rate plus cost per mile combine to create your monthly bill.

In addition to potential pay-per-mile savings, you may also be eligible for a 10% safe driving discount after renewing your policy for the first time. Nationwide, among other companies, also offers a road trip exception, where you are only charged for the first 250 miles per day rather than your total mileage.

Smartmile is available in all states except the following:

• Alaska
• Hawaii
• Louisiana
• North Carolina
• New York
• Oklahoma

Metromile

Metromile offers pay-per-mile insurance through a device (called the Pulse) and a mobile app, just like Nationwide and Allstate.

There are a few things that set Metromile’s app apart from others:

• Follow your car’s health
• Receive notifications that might help you avoid street-sweeping tickets (in select cities)
• Find a lost or stolen vehicle

If you drive fewer than 10,000 miles per year (or 27 miles per day), you might save money using Metromile’s services. Metromile also offers additional discounts for things like safe driving, anti-theft devices, or bundling multiple policies.

Metromile is available in eight states:

• Arizona
• California
• Illinois
• New Jersey
• Oregon
• Pennsylvania
• Virginia
• Washington

Mile Auto

Mile Auto also offers pay-per-mile insurance, but they do it differently, which I kind of like. Instead of installing a device in your car and feeling like you’re constantly being watched, you simply upload a picture of your odometer monthly and submit it in the Mile Auto app. The app confirms your vehicle data is correct and that the photo is authentic (no cheating). It also compares the photo to previous photos to verify your monthly rate.

Mile Auto offers liability coverage based on state requirements, as well as collision and comprehensive insurance. You can also add rental car insurance and roadside assistance coverage, options which are available for an extra charge.

Mile Auto is available in eight states:

• Arizona
• Florida
• Georgia
• Illinois
• Ohio
• Oregon
• Tennessee
• Texas

Examplepay-per-mile car insurance quotes

Before you start wondering how to switch car insurance to pay-per-mile coverage, let’s look at what you might pay each month.

Remember that your base and per-mile insurance rates are calculated using several factors, and the following are just examples. Your cost per month will vary based on your monthly mileage.

Metromile example

Metromile’s lowest monthly base rate is $29 and its pay-per-mile rate is $.06. If you drive 500 miles per month, then your monthly bill will likely be $59 per month ($29 + (500 x .06) = $59).

If you drive closer to 850 miles a month (roughly 10,000 miles a year), your monthly rate using the numbers above would be $80 ($29 + (850 x .06) = $80).

Consistently driving 850 miles per month for more than six months will likely cost $480. I suggest comparing the quote Metromile offers to a quote for a traditional auto insurance policy with full coverage to see if you’ll save money with a pay-per-mile policy because not everyone will.

Allstate Milewise example

The Allstate Milewise program uses a daily base rate in addition to a per-mile rate.

Assume your daily rate is $1.50 and your per-mile rate stays at $.06. If you drive 15 miles per day, your daily insurance rate will be $2.40 ($1.50 + (15 x .06)= $2.40).

If you consistently average 15 miles a day (commuting to work and running errands on the weekend), then your monthly rate could be $72.00 for 450 miles, or $432 every six months.

Is pay-per-mile the same as a low-mileage discount?

It’s easy to confuse pay-per-mile insurance with the low-mileage discount many auto insurance companies offer, but they aren’t the same.

• Low mileage discount: This is a discount on a standard insurance premium some insurance companies offer if you drive fewer than 8,000 miles per year. However, you don’t have to verify your mileage with a device or pictures of your odometer.
• Pay-per-mile: The exact miles you drive monthly determine your premium for that month. If you drive fewer miles one month, you’ll pay less, and if you drive more, your premium will increase for the month.

FAQs

Bottom line

There aren’t many people I’d recommend pay-per-mile car insurance for, unless you truly don’t drive much. No matter how much you drive, I suggest getting multiple quotes from the best car insurance companies, comparing rates, and understanding the full implications of any type of car insurance policy so you’re prepared for the worst-case scenario.