Drivers who don’t run up a ton of miles on their odometers have what is referred to as a “good problem.” By driving fewer miles, you are reducing the wear and tear on your vehicle, saving money at the gas pump and reducing the chances of a car accident.
Those are all good things. But you’re still paying for car insurance that doesn’t fully reward you for your minimal driving.
Pay-per-mile insurance is specifically designed so that you can control your monthly car insurance bill based on how much you drive.
How Pay-Per-Mile Insurance Works
“There’s a direct relationship with the miles people drive and the likelihood they’ll get in an accident,” says Rick Chen, a spokesperson for pay-per-mile insurance company Metromile. Even if you don’t drive much, others do. And that can impact the rate you pay, because an overall increase in accidents, repair costs and/or injury bills will pump up the rates for everyone.
“Insurers have to cover for these types of cases in their pricing,” Chen says. “They blanket it across their customer base.”
That said, insurers do offer low-mileage discounts, but the discount generally kicks in if your mileage is below only one threshold, such as 8,000 miles a year.
With pay-per-mile insurance, you get the same coverage types as you would with traditional car insurance, says Teresa Scharn, associate vice president of personal lines product development at Nationwide Insurance. This includes liability car insurance, collision and comprehensive coverage, uninsured motorist coverage and roadside assistance. But you get more control over the rate you pay because it’s based, in part, on the actual miles you drive.
Pay-per-mile insurance programs charge a daily or monthly base rate that is based on factors similar to those used when setting rates for a traditional insurance policy, such as your age, driving record, vehicle, location and credit. So the base rate will vary from person to person.
Then there’s a per-mile charge. The per mile rate also varies from person to person depending on the factors that are used to set the base rate, Scharn says. And the amount you pay will vary from month-to-month depending on the number of miles you drive. The monthly bill typically is based on the number of miles driven in the previous month.
There may also be discounts available. For example, in California, Metromile has discounts for good drivers, mature drivers, insuring more than one car and having a vehicle-recovery device.
Here’s an example of what a pay-per-mile plan might look like: You pay a monthly base rate of $29 per month and a per-mile rate of 5 cents. If you drive 500 miles in a month, you would pay a total of $54 for that month ($29 base rate plus 500 miles x $0.05 = $54).
Pay-per-mile insurance shouldn’t be confused with usage-based auto insurance, which places an emphasis on safe driving behaviors, such as braking and speeding, and less on actual miles driven.
How Miles Are Measured
For pay-per-mile programs to work, insurance companies have to have an accurate way to measure your miles. Most use a small device that plugs into a port near the steering wheel (called the OBD-II). You might need to have a vehicle that is model year 1996 or newer for the device to work, depending on the insurer. And some devices—such as Nationwide’s—might be incompatible with hybrid vehicles.
Some devices can detect location, speed, the time of day you’re driving and how safely you’re driving. This additional information typically won’t negatively impact your rate, but it can lead to discounts. For example, Nationwide’s SmartMiles offers an additional 10% off your premium after six months for safe driving, Scharn says.
Chen says that the Metromile device does track location in addition to mileage, but the location service can be disabled for privacy. If you keep it on, you can use Metromile’s app to track and plan trips, track your spending on gas by trip, and locate your car if it’s stolen. Metromile offers a feature in Arizona and Oregon that will monitor driving habits and allow safe drivers to get a lower rate.
If you don’t like the idea of installing a device in your car to track your mileage, another option is Mile Auto, which requires policyholders to take a photo of their odometers once a month to report mileage.
How Much Pay-Per-Mile Insurance Costs
Rates for pay-per-mile insurance vary from company to company. And rates will vary from driver to driver, as they would with traditional car insurance.
For example, Scharn says that the base rate for Nationwide’s SmartMiles program is about 30% of what the premium would be for a traditional Nationwide car insurance policy. So if your annual premium for a traditional policy was $1,000, the base rate for SmartMiles could be about $300 for you. The average rate per mile is 6.5 cents but can range from 2 cents to 10 cents, according to Scharn.
Liberty Mutual’s ByMile and Mile Auto say that customers save up to 40% off their standard insurance rates. Metromile says that its customers save an average of $741 a year. The website states that the base monthly rate starts at $29, but Chen says Metromile has some customers who are paying less than that. The average per-mile rate is 5 cents to 7 cents, according to Chen.
Unlike other pay-per-mile insurance programs, Allstate’s Milewise charges a daily rate and a per mile rate. You must link a credit or debit card to your account and costs are charged after a trip is completed.
Some of these programs have caps on miles you pay for per day. So if you take a long road trip, you won’t be hit too hard. For example, Metromile and Nationwide won’t charge for more than 250 miles driven in a day, and Liberty Mutual won’t charge for more than 150 miles driven in a day.
Who Can Benefit From Pay-Per-Mile Insurance?
Clearly, someone who doesn’t drive much might save money by switching to pay-per-mile insurance. But what constitutes “not driving much”?
On average, Americans drive 13,476 miles a year, according to the Federal Highway Administration. You’d have to drive less than that to save with pay-per-mile insurance, says Chen.
For example, if you were charged a base rate of $29 a month, a per-mile rate of 5 cents and drove 500 miles per month, you would pay a total of $54 a month for pay-per-mile car insurance. However, if you drive as much as the average American each month (1,123 miles), you’d pay about $85 a month.
When considering how much you drive, don’t mistakenly factor in the length of time your commute takes, especially if you spend time sitting in congested traffic.
“It’s not how long you spend in your car. It’s the distance you’re driving,” Chen says. “For most people, they’re simply not driving much at all.”
Car owners who don’t log a lot of miles might include:
- People who take public transportation to work and drive only on weekends
- People who work from home and don’t commute
- People with car leases that have tight mileage restrictions
- College students who live on-campus
- Retirees who seldom drive
A pay-per-mile insurance plan might also be appealing for drivers who want to save money based on actual mileage driven versus plans that focus on driving behavior, such as a usage-based car insurance.
Try It Before You Buy It
If you’re not sure whether pay-per-mile auto insurance is right for you, keep track of your miles before you commit to a plan. Metromile recently introduced its RideAlong app, which counts how many miles you drive for 17 days and then calculates what your rates and monthly bill would be if you were a Metromile customer.
Another option is to download a third-party mileage tracker app to your smartphone and track your miles. There are both free and paid apps that run in the background and log your miles driven. This could be a good option to track miles if you don’t have consistent daily driving habits, such as commuting to work or school.
How to Get Pay-Per-Mile Insurance
Allstate, Metromile, Mile Auto and Nationwide are the handful of companies that offer pay-per-mile insurance. With all four, you can get rate quotes online and get a better idea of how much you’d pay for coverage based on the miles you drive.
Pay-per-mile plans may not all be available nationwide.
Before switching to a pay-per-mile insurance policy, get quotes from companies that offer a program in your state. Then check your current policy to see if you can get the same level of coverage (or more) with a pay-per-mile program at a lower cost.