Pay-per-mile insurance explained!
Auto insurance is a necessary expense if you drive at all, but there are ways to save on monthly payments based on your driving habits. If you don’t get out on the road much, it might be worth it to consider a pay-per-mile auto policy. This type of insurance charges based on driving distance rather than preset rates.
Let’s look at pay-per-mile policies and how they differ from other usage-based insurance (UBI) policies to help you determine the right choice for you.
Understanding pay-per-mile policies
Some auto insurance companies factor in the overall number of miles you drive per year to help determine premiums. In contrast, “pay-per-mile” insurance is based on the actual mileage rather than an estimate that informs a regular premium. You can still get similar coverage in the event of an accident, including collision, comprehensive, medical payments, and other types you might need.
Insurance underwriters understand that likelihood of getting in an accident decreases if you drive less. And while traditional policies sometimes offer low-mileage discounts, pay-per-mile policies are explicitly based on how far you go.
How the price is determined
Base coverage for a pay-per-mile policy centers around mileage; however, traditional factors influence the rate. Other items include:
- Where you live (rates vary by state & zip code)
- The type of car
- Safety features/systems
- Driving record
- Credit history
If you don’t log many miles, you’ll still likely pay much less for a pay-per-mile policy than traditional auto insurance. For instance, the base rate could be as low as $30 per month.
Can you still go on road trips?
Pay-per-mile policies generally stop tallying miles once you go further than 250 miles in a day. And depending on the insurance company, you might not pay anything beyond a set expense cap once you exceed the coverage limit.
So, if you don’t drive regularly — but do enjoy going on an occasional road trip — some providers will still offer good coverage at a reasonable rate.
Are you a good candidate for pay-per-mile coverage?
The US is a country that drives a lot. According to the US Department of Transportation, the average person drives approximately 13,500 miles per year—1,125 miles a month. But if you drive fewer than 10,000 miles a year, a pay-per-mile policy might be a good option. Note that the mileage thresholds vary depending on the insurance company.
Good candidates for pay-per-mile policies include:
- Retirees who no longer commute to work regularly
- College students who only drive occasionally
- People who primarily use public transportation to get to work
- Those who live in cities & other urban areas
- Self-employed individuals or remote employees who work from home
- Onsite workers with short daily commutes
- Seasonal drivers (e.g., snowbirds)
Pay-per-mile vs. usage-based insurance
Some other variable-expense auto policies are known as usage-based insurance (UBI) or Pay As You Drive (PAYD). But they also take into account how you drive, as well as mileage. A tracking device is attached to your dashboard that records speed and braking habits, and higher speeds and hard braking are reported, suggesting a driver is more likely to get into an accident. UBI policies offer discounts based on safer driving habits.
What equipment do you need?
Policyholders don’t have to buy additional equipment for pay-per-mile insurance. The insurance company should provide you with a dashboard device attached to a vehicle’s onboard diagnostics port (OBD-II). Alternatively and depending on the vehicle’s age, drivers may be able to simply use a smartphone; insurance companies require them to send a photo of the odometer every month.
Pros and cons of pay-per-mile
- Lower price than traditional coverage and usage-based insurance
- More flexibility than standard policies
- Potentially substantial savings
- Not all states offer pay-per-mile coverage
- It’s only beneficial if you drive fewer than 10,000 miles per year
- It’s harder to comparison-shop since only a few companies provide pay-per-mile coverage
Let us help with your auto insurance needs
If you’re looking for auto coverage, whether that’s a low-mileage or standard policy, NICRIS is here to help. We’ll discuss your driving habits and lifestyle to see which options work best. We can also help with your other insurance needs, including homeowners, renters, life, and umbrella insurance.