Pay-per-mile car insurance and other usage-based insurance could lower your premium, but only for some drivers.
You might be wondering if you can get car insurance that is cheaper than traditional coverage if you own a car, but you don’t drive it much (especially during the pandemic). You might be able to save up to 40% on your car insurance by purchasing pay-per-mile coverage, but only if it isn’t used regularly.
What is pay per mile insurance?
You can pay per mile for car insurance. It’s therefore best for those who don’t drive a lot long-term.
Metromile is one company that specializes in this type insurance. Nationwide and a few other large insurers offer per-mile options. This discount is not available from some auto insurance companies. Pay-per-mile insurance is a different type of policy that offers a discount based on the distance you drive.
A type of usage-based insurance, pay-per-mile insurance, is one form. Use-based programs use telematics technology to monitor your driving habits with a mobile application or device that plugs into the car’s diagnostic port. This allows you to set your own car insurance rate.
There are two types usage-based insurance
- Pay-per-mile is a system that charges you based on the distance you drive.
- Pay-as you-drive or pay-as–you-go creates a rate based on your driving habits. If you have poor driving habits, some programs will increase your rates.
Who should have pay-per-mile auto insurance?
For drivers who don’t drive for long periods of time or who have a history of accidents, pay-per-mile insurance may be the best option.
- You can work from your home.
- Are you in college?
- You shouldn’t drive if they use mass transit, walk, or another mode of transport.
- A second vehicle that they seldom use.
According to the U.S. Department of Transportation, Federal Highway Administration, Americans average driving 13,500 miles per year. However, it is difficult to determine how much you must drive to get pay-per mile insurance.
Mile Auto, a pay per mile insurer, stated on its website that you are likely paying too much for your auto insurance if you drive less then 10,000 miles per year. Nationwide states that you are most likely to get pay-per mile insurance if you drive less then 8,000 miles per year.
What does pay-per mile car insurance look like?
Pay-per mile insurance typically charges a base rate that is the same every month and then a per rate per mile. This rate usually has a cap of 250 miles per day.
Your base rate is determined like a traditional car insurance quote. Rates are determined by factors such as age, gender, car make, and model. Although your rate is calculated differently, you get the same coverage as a traditional policy and aren’t strictly limited to specific coverage such as liability insurance.
Telematics are used by companies to track your driving habits. Nationwide Smartmiles, for example, also looks at your driving habits to determine whether you are eligible for a discount.
Metromile customers in Oregon can also get a discount using the “Ride Along” feature. It tracks your driving habits for approximately two weeks using its app. The company will then estimate your monthly bills based on the data. Metromile will also look at driving habits in Arizona, Illinois and Oregon to calculate your pay-per mile and base rate for renewal.
Mile Auto provides pay-per mile insurance that doesn’t require you to share data. Instead, you will need to send a photograph of your odometer every month.
Pay-as-you-drive policies
You can pay-as you drive policies, which are a type insurance where your driving habits determine your rate. These programs can increase your car insurance rates if you drive aggressively, frequently, or in the middle of the nights.
These are some of the most common driving habits that can be tracked:
- Breezing hard.
- Speed and acceleration
- When you drive (late-night driving could be unsafe).
- How often you drive.
- Mileage
- If an app tracks cell phone usage,
Other telematics discount and reward programs
Telematics programs may not be usage-based. These programs don’t base your car insurance rates on your driving habits or mileage. Instead, they use telematics to give you a personalized discount or cash back. A telematics program can help you get a 10% discount for driving well. For example, $100 might be your monthly car insurance rate.
These programs, such as Allstate’s Drivewise program, don’t directly affect your rate. There is likely to be no financial downside. However, rates can still rise based on traditional factors like your driving record and your location, regardless of whether or not you are participating in these programs.
Telematics tips
You will have to pay a lot more for pay-per mile car insurance than traditional auto insurance. Before changing your policy, be sure to ask these questions:
- Is there a daily limit for pay-per mile insurance?
- Do you think that your location is being monitored by an app, plug-in, or both?
- Does the app or device have a connection to a particular car or driver?
- What information are you tracking?
- How can you save money by changing your driving habits?
- Are your rates affected by driving habits?
