Should you switch to pay-per-mile insurance?

How does pay-per-mile car insurance work?

With auto insurance by the mile, your car insurance rates are determined by how many miles you actually drive. This may give you greater control over the cost of your coverage, helping people like high-risk drivers manage their car insurance budget. With this insurance model, companies generally equip your car with a mileage-tracking device or request routine odometer updates so they can track how much you are driving and bill you accordingly.

Usually, pay-per-mile car insurance costs are divided into two categories:

• Your base rate: This is the flat amount you’re going to pay (usually each day or month). Insurers would use the same factors to set this rate as they do with any other car insurance policy in your state. That means things like your driving history, vehicle type and claim history may all come into play.
• Your pay-per-mile rate: On top of your base rate, you pay by the mile. The charge per mile is usually small, but it can add up quickly if you drive a lot in any given month. But if you don’t drive much, the cost of pay-as-you-go car insurance may rival even the cheapest traditional car insurance policies. The less you drive, typically the lower the risk of an accident and, therefore, the less financial risk assumed by insurers that a claim will be filed.

It’s important to note that if you lease your car or have an auto loan, pay-per-mile insurance may not be accepted by your specific lender.

How is pay-per-mile insurance different from a telematics program?

While telematics and pay-per-mile insurance both use apps or in-vehicle devices to track your driving, they have different goals. With auto insurance by the mile, your coverage provider is looking at the distance you drive and charging you a direct per-mile fee. With telematics, the carrier is looking at your general driving habits and adjusting your rates accordingly. Telematics programs often factor in your driving distance, but it's just one of the metrics they monitor.

Telematics insurance typically offers safe driving discounts to people who use best practices out on the road, including driving the speed limit and avoiding aggressive braking practices. If you are a safe driver and you are looking to find cheaper car insurance, a telematics program might help you save money.

Where can I buy auto insurance by the mile?

The availability of pay-per-mile car insurance isn’t widespread yet, but it’s gaining in popularity as several circumstances — such as having a work-from-home job or living in a city and relying more on public transit — could also make pay-per-mile insurance a convenient choice.

Below are some of the pay-per-mile options from a few popular auto insurance companies. All the base rate and per-mile rate examples, along with the estimated savings, come directly from the insurance providers’ websites and are subject to change.

Who should consider pay-as-you-go car insurance?

Anyone who drives fewer miles than the average driver may want to consider pay-as-you-go car insurance. Whatever your situation, if you have a vehicle that spends more time in your garage than it does out on the roads, pay-per-mile insurance could potentially save you money.

Here are a few key groups of drivers that might save the most with pay-as-you-go car insurance.

People who don’t drive a lot

Retirees, remote workers, people who can walk to work or part-time workers may be good candidates for pay-per-mile insurance. These drivers are probably not covering nearly as many miles as the average commuter, which means they might save with insurance by the mile.

Just keep in mind that if you switch your coverage and then have to go back to commuting, you could end up paying more if you keep your pay-per-mile insurance policy.

People who have another primary mode of transportation

Perhaps you own a car, but you primarily use a bike, public transport or rideshare to get around. You may be able to save by switching to pay-as-you-go car insurance if your car isn’t getting much use.

People who attend college

If you’re looking for car insurance for college students, pay-per-mile might be a good option. Many students go to college and leave their vehicles behind, which means the vehicle may temporarily go completely unused. Some companies offer a distant student discount for this situation, but pay-per-mile coverage could be a good alternative to consider. Even if you have a vehicle at school that you use very rarely, pay-per-mile insurance might be a cost-saving coverage option.

People who have a second vehicle they rarely use

Multi-car insurance policies aren’t your only option if you have more than one vehicle. If you have more than one vehicle, you might find yourself driving one more often than the other. Your second vehicle might benefit from pay-per-mile insurance. Drivers with pleasure vehicles — cars that are only driven occasionally — might save money by signing the second vehicle up for a pay-per-mile program, which may cost less than adding a second vehicle to your existing auto insurance policy.

Is pay-per-mile car insurance cheaper?

The easiest way to find out if pay-as-you-go car insurance may be cheaper for you is to ask for quotes from some of the insurers who offer it as an option to drivers. Benefiting from pay-per-mile coverage is largely situation-based: if you drive very little, you are likely to see savings; if, on the other hand, you are a frequent driver, your rates will probably increase.

One factor to consider is that some of the insurers who offer pay-per-mile coverage cap the daily fees at 250 miles. For instance, if you are retired and rarely drive but do travel by car to Florida from your Connecticut home for the winter, you may still save money since your infrequent long trips will only count for the first 250 miles you drive per day.

To decide whether pay-per-mile makes sense for you, it may be helpful to calculate how much you would pay for pay-per-mile insurance and compare it to your current rate. Let's consider an example. For reference, the average cost of car insurance in the U.S. is $2,545 for full coverage and $741 for minimum coverage. One way to estimate your potential savings with pay-per-mile coverage is to use this formula:

Your monthly base rate + (average miles driven per month x your per mile rate) = your premium rate

Let's say you are given a base rate of $70 for your coverage. Your per-mile rate is $0.08 per mile, and you drive an average of 300 miles a month. Your formula would look like this:

$70 + (300 x $0.08) = $70 + $24 = $94

If you are paying more than $94 a month in this scenario, you could save money by switching to a pay-as-you-go model. If this were you, pay-as-you-go insurance would cost you $1,128 a year, which is well below the national average for full coverage insurance. Moving to a mileage-based policy could save you a considerable sum of money.

Pros and Cons of pay-by-mile insurance

No type of insurance is right for everyone, and like other types of insurance, mileage-based coverage has benefits and drawbacks. Here are a few of the factors you may want to consider when you are deciding if it's the right option for your situation:

Frequently asked questions