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If the pandemic changed where you work, you may be able to get some auto insurance savings. If your commute ended or it’s now only a couple days a week—or you have always worked from home—you might benefit from pay-per-mile auto insurance.
What is Pay-Per-Mile Auto Insurance?
Traditional car insurance doesn’t track your mileage and assumes a broad level of regular driving. Pay-per-mile auto insurance or pay-as-you-go coverage determines your premium by how far you drive.
“Pay-per-mile car insurance is fair for drivers because it uses actual driving observations to decide how much a policyholder pays for their auto insurance premium,” says Rick Chen, a spokesperson for pay-per-mile insurance company Metromile.
Pay-per-mile auto insurance includes all the same types of coverage you receive from a traditional auto policy—liability, comprehension and collision, uninsured motorist and roadside assistance. But you pay for the miles you actually drive.
With a traditional auto insurance policy, the insurance company must account for risk and miles associated with all drivers. So even if you’re a low-mileage driver, your insurance cost will largely reflect other drivers’ claims for repair costs and medical bills. If these expenses increase, so will the rate you pay. It’s like those bad elementary school teachers who made everyone miss recess because a few people were talking. What a bummer.
Although some insurance companies offer low-mileage discounts, it’s important not to confuse that with pay-per-mile coverage. With low-mileage discounts, insurers will typically only apply a discount if your mileage falls under a specific limit such as 7,500 miles a year.
How Does Pay-Per-Mile Auto Insurance Work?
There are two components to the rate you pay with a pay-per-mile policy: a base rate and a per-mile rate.
The base rate can be charged daily or monthly and is determined by your personal details (such as age, location and credit) and driving history, just like you would see with a traditional auto policy. The per-mile rate is typically a few cents per mile.
“You can think of the base rate as the cost to insure your car when it’s parked, and the rate per mile as the cost for the distance you’re actually driving,” says Chen at Metromile. “When an auto insurance company calculates premiums, they are looking at the risk of an accident, which is higher if you’re on the road frequently than if your car is parked in the garage.”
To accurately measure your time on the road, pay-per-mile insurance companies will provide a device that plugs into your vehicle’s OBD-II port, which is usually near the steering wheel. This is the port auto mechanics use to diagnose any issues with your car.
It’s important to note that if you have a hybrid or diesel-powered vehicle, or your car is older than 1996, the tracking device may not be compatible with your vehicle.
With Metromile, Chen says that your device can track your location with its smart driving features. So if you’re stranded on the side of the road, they already have the location data to make it easier to file a claim. Additionally, if you’re parked in a big city, Metromile will send you notifications to help avoid parking tickets.
If you’re a very good driver, another option is usage-based car insurance. These programs track your mileage and your driving habits, such as speeding and braking.
How Much Can You Save With Pay-Per-Mile Insurance?
The actual amount you can save depends on your unique situation, just like when you have a traditional auto policy.
For example, Liberty Mutual’s ByMile says customers can save an average of 25%, and Mile Auto says that customers save up to 30% to 40% off standard insurance rates. Metromile says that its customers save an average of 47%.
To illustrate how much you can save, let’s say you have a $29 monthly base rate and a per-mile rate of 6 cents. If you drive 100 miles in a month, you will pay $35 ($29 base rate + 6 cents × 100 miles) for auto insurance that month and $420 per year. Compare that estimate to your current monthly car insurance bill if you’re a low-mileage driver.
Is Pay-Per-Mile Insurance Right for Me?
The average U.S. driver drives about 13,500 miles per year, or roughly 37 miles a day, according to the most recent data from the U.S. Department of Transportation. Chen says that the national average or fewer miles is considered “low mileage” in the insurance industry.
He estimates that 65% of American drivers are low-mileage drivers—people who could potentially save money with pay-per-mile insurance.
Drivers who can benefit from a pay-per-mile auto policy can include:
- People with short commutes
- People who work from home
- People who take public transportation
- Senior drivers
If you think pay-per-mile coverage might be right for you but you’re not sure, you can try it before you buy it. The Metromile app, for example, offers a Ride Along feature that allows drivers to track their mileage for about two weeks and then get a car insurance rate estimate to see if they will save.
Or you could download a third-party mileage tracker and track your trips. That way you can see if your mileage is actually low.