Pay Per Mile Car Insurance: Everything You Need to Know
If you have a car that sits in the garage most days—whether because you are retired or working from home or because you just don’t drive often—you may be wondering if there’s a cheaper alternative to traditional car insurance coverage.
The good news is that there is a way to save money on your auto insurance premium. If you don’t drive frequently, pay-per-mile car insurance could help to lower your monthly rate — even by as much as 40%, depending on who you choose. There are many cheap insurance providers that offer great coverage and rates.
Want to find out why pay per mile insurance is such a smart and affordable option? Stay with us as we cover how it works, who needs it, and how much it can save you each month.
What Is a Pay-Per-Mile Car Insurance Policy?
Pay-per-mile car insurance is an insurance policy that lets you pay for coverage based on how many miles you drive. In other words, the less you drive, the less you pay. That’s because insurance prices are based on risk, or the likelihood that you will file a claim that the company has to pay. And, of course, the less you’re out on the road, the less likely you are to have an accident. Because of this, pay-per-mile insurance is best suited for people who don’t generally drive a lot, including:
- People who work from home
- City dwellers who frequently walk or use public transportation
- College students
- People with short daily commutes
- Those who have a second vehicle they rarely use
There’s no exact number of miles you need to drive—or not drive—to benefit from pay-per-mile car insurance. However, it is helpful to know that the average American drives about 13,500 miles a year—and that if you drive less than 10,000 miles a year, you’re probably paying too much for auto insurance. On average, the drivers that save the most from pay-per-mile insurance log less than 8,000 miles annually. A smart driver should always be on the look out for potential auto insurance discounts.
How Pay-Per-Mile Car Insurance Works
Pay-per-mile car insurance is a type of policy that offers full coverage, including comprehensive and collision coverage. It’s sometimes referred to as low-mileage insurance, but the two are slightly different. Here’s how. While pay-per-mile coverage prices your car insurance by the mile, low-mileage car insurance determines your rate based on how far you drive. Instead of a percentage off your traditional policy, it’s a deduction that is given at the end of the policy year for drivers who log under a set number of miles.
By contrast, pay per mile insurance charges you a certain amount for every mile you drive in a month, on top of a base rate. For example, if you only log five or six thousand miles, which is less than half the national average, you could potentially save hundreds of dollars a year on your insurance.
Pay-per-mile insurance is calculated using a base rate. Your insurer will create this base rate by using factors such as your age, where you live, and the type of vehicle you drive, in addition to your driving history and credit history. Next, you will receive a per-mile rate. The amount of this rate will vary depending on your provider, although charges are usually capped at 250 miles per day. And here’s the good news. Even though your rate is calculated differently than it is with traditional insurance, you’ll still benefit from the same coverage as a traditional policy—without being restricted to limited coverage or minimal liability insurance.
Once you’ve got your base rate and per-mile rate, you’ll begin to pay only for the miles you drive. Insurers use technology known as “telematics” to track how far you drive, and it’s done in one of two ways. You can opt to use a device that plugs into the dashboard, or you can use a photo app to send a picture of your odometer. Finally, you will then be sent a monthly bill based on how many miles you’ve logged.
How Much Does Pay-Per-Mile Insurance Cost?
The cost of pay-per-mile insurance depends on a few factors, from how much you drive and which provider you choose to your own driving and claims history. You may be able to save quite a bundle—up to 40% or more, according to some providers—but this usually only applies to people who drive less than 8,000 miles per year.
Remember, your pay-per-mile car insurance bill comprises two parts. First, there’s the low monthly base rate, and then there’s the per mile cost, at an average of five or six cents per mile. For a more accurate picture of how much you stand to save, there’s a handy formula you can use based on those factors:
Monthly base rate + (Per-mile rate x Approximate number of miles you drive per month).
For example, let’s say your pay-per-mile quote shows a monthly base rate of $40 and a per-mile rate of 6 cents. You generally drive 700 miles a month. You can calculate your monthly rate as:
$34 + (.05 x 800) = ($34 + $40) = $82.
Keep in mind that this is only an estimate, and the amount you pay each month will vary depending on how many miles you drive. Not sure how many miles you drive? Start keeping track of your mileage before trying a pay-per-mile plan to give you a better idea of what your car insurance rates will be.
See How Much You Can Save on Auto Insurance Each Month
One of the best ways to keep your rates down is to find auto insurance policy rates that offers you low-cost coverage—and we’ve done all the searching for you.
We offer the best possible coverage rates to help you and your loved ones stay safe behind the wheel—while also putting some money back into your pocket. Thanks to our fast and affordable free online insurance quotes, you can choose a plan and get your coverage in just minutes. Get your free quote today and join the growing number of drivers who are saving on their auto insurance every month!