Should You Switch to Pay-Per-Mile Car Insurance?

Pay-per-mile car insurance allows customers to pay for coverage based on how much they drive. The reasoning is that drivers who are on the road more frequently are more likely to be involved in an accident. Those who drive less are therefore less risky to insure and thus pay lower rates.

A pay-per-mile policy may result in lower rates for some drivers. We still recommend that shoppers compare quotes from multiple carriers because their pricing schemes and policy features differ.

Continue reading to find out which companies offer pay-per-mile car insurance and whether it's right for you.

How does pay-per-mile car insurance work?

Customers who purchase pay-per-mile car insurance pay a base rate plus a per-mile fee.

• The base rate is calculated in the same way that standard auto insurance policies are by evaluating relevant factors such as your age, vehicle, driving record, and so on. The base rate is usually between $20 and $50 per month, depending on the individual.
• The cost per mile is usually a few cents. If you drive 200 miles per month at a rate of 4 cents per mile, you would be charged an additional $8 on top of the base rate.

Carriers typically count your miles using a small device installed in your vehicle. Pay-per-mile schemes may be appealing to some drivers who want low-cost car insurance but don't drive frequently.

Companies that offer pay-per-mile car insurance

Only a few insurers currently offer pay-per-mile car insurance policies, though many offer discounts for lower mileage. Here is a list of insurance companies that offer pay-per-mile car insurance, as well as locations where their policies are available.

These four insurers provide true pay-per-mile services in the sense that customers are charged based on a base rate and a per-mile fee. While availability is currently restricted to a few states, many carriers intend to expand their offerings to other regions in the near future.

How pay-per-mile differs from telematics insurance and other rate schemes

Many insurers now rely on new technologies such as in-car sensors to analyze driving behavior and set rates, including for pay-per-mile policies. Telematics is the term used to describe the use of such connected devices in insurance.

While some carriers do not charge per mile, they will provide a telematics discount based on mileage or safe driving behavior. Some insurers, such as Root, have created new policy offerings that are priced based on a variety of driving metrics other than mileage.

These programs can be a little more difficult to understand in terms of how fewer miles translates to a lower rate. Carriers will still price premiums based on a risk pool in this case, as is the traditional way of pricing car insurance.

You will receive a discount if they analyze the data from your device and determine that you are a safe or infrequent driver. Some programs require you to return their device after a certain period of time, and your discount will be applied to your next policy renewal.

Drivers who should switch to a pay-per-mile car insurance

Those who drive less than the national average of 12,000 miles per year, or 1,000 miles, will benefit the most from pay-to-drive or pay-per-mile. Even at a few cents per mile, anything more than 12,000 miles plus the base rate makes the service prohibitively expensive.

Going with a pay per mile service can save you a lot of money if you only use your car occasionally. However, if you undervalue your driving habits, you may end up paying more.

We'll show you how a pay-per-mile service can save you money compared to other insurers, but only up to a certain monthly mileage. Metromile is less expensive than Geico for up to 125 monthly miles and less expensive than State Farm for up to 825 monthly miles.

Pay-per-mile and standard car insurance rates by mileage

Rates are for a minimum coverage policy in the state of California, for a 30-year-old single male driver of a 2015 Honda Civic EX.

Quotes can differ significantly between insurers, so a pay-per-mile service may be more competitive with some carriers than others. Before purchasing pay-per-mile car insurance, drivers should consider their driving habits, such as their daily commute.

In addition to mileage considerations, you should be aware of the following potential drawbacks:

• Pay-per-mile insurance is only available in a few states.
• Some carriers that provide pay-per-mile insurance policies and telematics pricing schemes are new and untested. Their financial strength to pay out claims in the long run is not tested in comparison to large national insurers.
• Similarly, some customers have complained about the slow and inefficient claims processes associated with pay-per-mile programs such as Metromile.

Final thoughts

Overall, using a pay-per-mile car insurance service can save you a lot of money, but only if you drive infrequently. If your driving habits aren't great, you should avoid programs that track them and can raise your rates even more.

If you believe you are overpaying for the amount of driving you do, check to see if your company has a discount or program. Otherwise, you can check to see if another company's discount will be less expensive than your current rate. Pay-per-mile programs are expected to spread to other states in the near future.