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If you don't put much mileage on your car, you may want to look into pay-per-mile car insurance. With this type of coverage, your insurance costs go up or down depending on how much you're driving. Pay-per-mile insurance can pay off if you're not logging a lot of miles, but there are drawbacks to consider as well. Here are the pros and cons of pay-per-mile insurance.
What Is Pay-Per-Mile Insurance?
A traditional car insurance policy charges a set premium to cover your car if you're involved in an accident that injures someone or damages a car or other property. It can also cover your car if it's stolen, damaged in an incident like a fire or damaged by an object such as a fallen tree.
Pay-per-mile insurance can offer the same types of protection as a traditional car insurance policy. However, instead of paying a set premium, you pay a rate based on how much mileage you rack up. The rate actually consists of two rates: a base rate and a per-mile rate (more on this below).
Pros of Pay-Per-Mile Insurance
Lower costs: Pay-per-mile insurance could end up costing you less than traditional insurance, possibly up to 40% less according to some pay-per-mile providers.
Full coverage: Pay-per-mile insurance normally offers the same kinds of coverage as traditional insurance does. For example, pay-per-mile insurer Mile Auto sells liability coverage, comprehensive and collision coverage, rental car reimbursement coverage and roadside assistance.
Mileage caps: Some sellers of pay-per-mile insurance cap the number of miles you can drive per day. So, if you exceed the cap of, say, 500 miles in a single day, you may end up paying only for the first 500 miles. But if you regularly meet or surpass the cap, you might pay more for coverage than a driver with regular coverage.
Cons of Pay-Per-Mile Insurance
Limited availability: Drivers in some states might not be able to buy pay-per-mile car insurance. For example, Nationwide's SmartMiles pay-per-mile coverage isn't available in Alaska, Hawaii, Louisiana, North Carolina, New York and Oklahoma. Meanwhile, some insurers, such as Progressive, don't offer this coverage.
Upfront payment: In some cases, an insurer might require an upfront payment for pay-per-mile insurance instead of monthly payments.
Privacy concerns: If you're protective of your privacy, you might want to steer clear of pay-per-mile insurance. An insurer might collect your mileage data through a device installed in your car or through a mobile app.
Should You Get Pay-Per-Mile Insurance?
If you don't put a lot of miles on your car, you might benefit from pay-per-mile insurance. Mile Auto says it makes sense to consider pay-per-mile coverage if you log fewer than 10,000 miles per year.
Motorists who might benefit from pay-per-mile insurance include:
- People with short commutes or who work from home
- Stay-at-home parents
- Part-time workers
- People who rely heavily on public transit
- College students who live on or near campus
- Retirees who no longer commute to and from work
Learn more: How Does Mileage Affect Car Insurance?
How to Calculate Pay-Per-Mile Insurance Costs
So, how is a monthly premium for pay-per-mile insurance calculated? Here's the formula:
- M = Monthly base rate
- P = Per-mile rate
- E = Estimated number of miles per month
Let's say the monthly base rate is $25. If the per-mile rate is 6 cents and you drive 500 miles per month, you'd pay a monthly per-mile rate of $30. That adds up to a monthly cost of $55.
Here's the calculation: $25 + (0.06 x 500 miles per month) = $55
In this example, the monthly cost of pay-per-mile car insurance is $55, but Experian data shows the average car insurance premium is about $192 per month. Keep in mind, though, that $55 versus $192 might not be an apples-to-apples comparison due to variables such as the type of car and the motorist's driving record.
How to Buy Pay-Per-Mile Insurance
Just as you should shop around for traditional car insurance, you should shop around for pay-per-mile insurance. By getting quotes from several pay-per-mile insurers, you can see how different policies stack up based on factors such as cost, coverage and customer service.
Here's a list of some insurers that sell pay-per-mile insurance. Note that some insurers may not provide this coverage in every state.
- Allstate Milewise
- Metromile (owned by Lemonade)
- Mile Auto
- Nationwide SmartMiles
Alternatives to Pay-Per-Mile Insurance
If you're looking to slash your car insurance premium, you've got options other than pay-per-mile insurance. Alternatives to pay-per-mile insurance include:
- Raising your deductible: Increasing your auto insurance deductible from, say, $200 to $1,000 can decrease your premium. However, it will mean a higher out-of-pocket cost if you have to file a claim.
- Adjusting your coverage: If you're driving an older car that's paid off, you might consider dropping comprehensive and collision coverage, for example.
- Hunting for discounts: Insurers offer an array of discounts. For example, you may be able to score a discount for maintaining a clean driving record or signing up for a program that electronically monitors your driving habits. Or you might trim your insurance premium if you now work from home and are driving fewer miles.
- Shopping around: You may be able to find the same coverage at a lower price if you compare quotes from several providers.
Learn more: How to Save on Car Insurance
The Bottom Line
If you drive fewer than 10,000 miles per year, you might consider pay-per-mile insurance. Why? Because you may be able to drive down your car insurance premium while maintaining the same level of coverage you'd enjoy with a traditional policy. However, pay-per-mile coverage comes with some drawbacks, such as limited availability and possible upfront payments rather than monthly payments.