How does pay-per-mile car insurance work? – atlantisthemes

Pay-per-mile auto insurance bases your rates on how much you drive. As a result, if you drive fewer miles, you could pay less.

To help you decide if pay-per-mile car insurance is worth it, let’s review how these policies work, what rates you can expect, and which companies offer this type of auto coverage.

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Pay-per-mile auto insurance has a two-tiered rate structure that considers mileage in determining your costs:

• Base rate: The base rate is a flat daily or monthly fee that you pay no matter how much you drive. The standard rating factors that influence your base rate include your driving record, age, gender, and vehicle type. The base rate essentially covers the risks associated with a parked car as well as the administrative costs of the policy.

• Per-mile rate: The per-mile rate is multiplied by the number of miles driven. This amount is added to your base rate to determine your total cost. The per-mile rate pays for driving risks, such as collisions.

When these two rates are combined, your car insurance costs fluctuate monthly depending on how much you drive.

This differs from traditional auto insurance, which charges you one fee, or premium, for a defined coverage period, such as six months. The premium applies whether you drive 20,000 miles or your car never leaves the garage.

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Monthly base coverage for pay-per-mile auto insurance depends on where you live, the insurer you choose, and other factors like gender, age, and vehicle type. But the base cost can be as low as $29.

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To estimate your pay-per-mile coverage costs, you need three pieces of information: an estimated base rate, an estimated per-mile rate, and how many miles you drive per month on average. Here’s how that formula breaks down:

Base rate + (per-mile rate x miles driven) = Total monthly cost

Expert tip: To obtain personalized base and per-mile rates, compare car insurance quotes from at least two to three providers. This way, you can find the auto insurance that’s right for you and your budget.

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Let’s assume your base rate is $50 per month, and your per-mile rate is $0.06. If you drive 260 miles in a month, your total cost for that month would be $65.60.

You may pay less than $62 if your insurance policy includes a daily mileage cap. Some providers include this feature so you can still take the occasional road trip without seeing a huge spike in your costs. For example, Nationwide SmartMiles has a daily cap of 250 miles. With that cap, you could drive 500 miles in a single day and only be charged for the first 250.

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The pay-per-mile insurance rate structure requires the insurance company to know exactly how many miles you drive. There are a few ways this information can be collected:

1. Plug-in telematics device: Telematics devices typically plug into your car’s on-board diagnostics (OBD) port. Most cars built after 1996 have OBD2 ports, and they are usually located under the dash or around the center console. Once plugged in, the device shares your mileage with your insurance company.

2. Connected vehicle: In some cases, insurers can gather mileage information directly from your vehicle. Nationwide SmartMiles, for example, can collect info from any 2018 or newer Toyota connected cars.

3. Mobile app: A mobile app installed on your smartphone can track your mileage using GPS.

4. Mandatory odometer photo submission: Mile Auto promises data privacy by requiring drivers to share a monthly photo of their odometer. This ensures you share only the car’s mileage information. Data relating to where you drove and how you drove remain private.

Traditional car insurance bills your premiums in advance. Pay-per-mile insurance must bill the variable portion of your costs (your per-mile rate) after you’ve driven. Insurance companies handle this in different ways, such as:

1. Billing the base rate and per-mile costs at the end of a day, week, or month

2. Billing the base rate upfront and the per-mile costs at the end of the period

3. Requiring drivers to deposit funds into an account that is deducted periodically, sometimes daily, for insurance costs

• Cost savings: The biggest benefit of pay-per-mile insurance programs is the potential savings compared to a traditional car insurance policy.

• Variable costs: Pay-per-mile insurance costs fluctuate depending on how much you drive. This can create more savings if you take long vacations or frequently travel away from home for work.

• Diagnostics support and theft recovery: Telematics devices can be used to assist with vehicle diagnostics and locating stolen vehicles. Check with your provider to see if these benefits are available.

• Limited availability: Pay-per-mile auto coverage may not be available in all states. Your car might also be incompatible with the telematics devices many insurers require for pay-per-mile coverage.

• Not for high-mileage drivers: If you drive more than 13,000 miles annually, which is about average in the U.S., pay-per-mile auto insurance may cost more than standard insurance.

• Privacy concerns: Depending on the tracking method, the insurance company may record where you drive, how you drive, and the miles you cover. To ensure you are comfortable with the data being shared, verify what information will be recorded and how it will be used.

Pay-per-mile insurance could be a good fit for anyone who drives fewer than 13,000 miles annually, including:

• Retirees who stay close to home

• Urban dwellers who primarily use public transportation

• Professionals with short commutes or who work at home

The pay-per-mile model may also be cost-effective for second cars that aren’t driven much. You might have one standard policy on the household’s main vehicle and a per-mile policy on your lesser-used second car.

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Depending on where you live, you may have access to pay-per-mile insurance through one of these programs or providers:

• Allstate Milewise

• Just Insure

• Metromile

• Mile Auto

• Nationwide SmartMiles

Expert tip: When comparing pay-per-mile auto insurance plans, evaluate their daily mileage caps, coverage options, billing processes, and rates.

Pay-per-mile insurance isn’t the only way to capitalize on low-mileage driving. Here are a couple other options to consider:

1. Usage-based insurance (UBI): UBI tracks how you drive and your mileage. Safe driving habits combined with below-average mileage can earn you the lowest rates. Preferred habits include adhering to speed limits, braking and accelerating softly, and avoiding middle-of-the-night trips.

2. Traditional coverage with a low-mileage discount: Some insurance companies offer discounts on traditional coverage for low-mileage drivers. This may be a better option than pay-per-mile coverage if there is a lot of variability in your driving. A consistent premium could be easier to budget than fluctuating costs.

The biggest risk with using pay-per-mile insurance is driving more miles than you realize. If you underestimate your mileage, your insurance costs could be higher than you expected — perhaps making pay-per-mile insurance more expensive than a traditional policy.

Filing a claim under your pay-per-mile policy should be similar to filing a claim with traditional auto coverage. You call or complete an online form to notify the insurance company of the claim. From there, the representative assigned to your claim will walk you through the next steps.

Pay-per-mile insurance ties your insurance costs to the number of miles you drive. Usage-based insurance (UBI) tracks mileage as well as your driving habits — and sets rates accordingly. Drivers who speed, brake hard, or routinely get behind the wheel late at night may see higher rates on a UBI program. Some UBI plans have per-mile rate components. To avoid getting penalized for how you drive, always confirm with your insurer what data they’ll collect and how it will influence your rates.

Pay-per-mile insurance may cost less if you don’t drive much. To know how much you’ll save, compare quotes and use the rates to estimate your costs based on your average monthly mileage. Also consider how much your mileage could change from month to month. You may have busy and slow driving months, and you’ll want to plan accordingly.

Jamie Young and Tim Manni edited this article.