What Is Pay-Per-Mile Auto Insurance?

If you drive infrequently or don’t go very far when you drive, you may benefit from having pay-per-mile car insurance. It tends to be cheaper to pay for car insurance by the mile in these scenarios – sometimes even 50% cheaper.

The idea behind auto insurance by the mile is that drivers who drive less often are less risky to insure simply because they aren’t on the road as often as other drivers. While this might sound great so far, your savings may come with some unconventional caveats. Keep reading to find out how car insurance by mileage works, how much it costs, and if it’s worth switching.

Pay-as-you-go auto insurance, or mileage-based insurance, is a product offered by several car insurance companies. It provides drivers with a discount on their insurance as they only pay for miles driven. Drivers who enroll in a pay-as-you-go car insurance program pay daily or monthly for their coverage.

Auto insurance by mileage is a great concept for people who don’t drive often, don’t drive far, or need insurance on an extra car that isn’t used often. This type of insurance could be great for a student who lives at school without a car, an older person who doesn’t travel far, or someone who works from home and doesn’t have a daily commute. 

Similarly, drivers in states like New York, Rhode Island, Hawaii, and Washington, where drivers cover statistically fewer miles in a year than in other states, may consider this a viable option for auto insurance. 

Most insurers who offer car insurance by miles driven have a cap on the maximum miles policyholders will pay daily, monthly, or yearly while enrolled in such a program. We recommend researching to decide if this type of auto insurance is right for your situation.

Pay-by-the-mile car insurance is often at least 20% less than a standard insurance policy, while some participants may see their rates decrease by 50%. As the average cost of a full coverage policy is about $2,089 annually, a pay-per-mile policy may cost anywhere from $1,670 to $1,045 annually.

When you enroll in one of these programs, you pay a low monthly base rate plus a variable amount. The variable amount is calculated using the cost per mile offered by your insurer multiplied by the miles you drove that day or month. 

Like a standard car insurance policy, your premium for car insurance based on mileage will be calculated based on age, gender, the type of car you drive, where you live, and other factors. However, these factors will affect your rate less with a pay-per-mile policy than they would with a standard policy.

On average, the base rate for most by-the-mile insurance policies is about $30 per month. Then, your insurer will use the data collected by a telematic device (a data-collecting device that plugs into your car) to calculate what you’ll pay based on miles driven. Most car insurance companies charge about $0.06 per mile.

So, if you drive 500 miles in one month, you can calculate your premium by multiplying $0.06 by 500 to get your variable rate, then adding $30 for your base rate. Your total car insurance bill that month will be $60.

While auto insurance pay-per-mile programs tend to be cheap already, to get your rates even cheaper you’ll want to reduce your coverage to the minimum limits in your state and compare quotes from multiple insurers. 

Comparing quotes from several insurers is one of the best ways to ensure you get the best rates for your desired policy. Similarly, reducing your coverage to the legal minimum limits in your states will help you keep your premiums down. 

While cheap car insurance by mileage may be easy to find, getting the absolute cheapest mileage-based policy may take a bit more digging. These programs boast rates of up to 50% off traditional auto insurance policies, but some policies may go even lower depending on your chosen insurer’s base rates, other discount offerings, and the type of policy you select. 

The best pay-as-you-go car insurance will be a policy with low enough rates to be significantly cheaper than a standard full-coverage car insurance policy. However, getting the lowest rate doesn’t always mean getting the best policy. 

When determining the best pay-per-use auto insurance company, you’ll also want to consider the insurer’s reliability and customer service. Companies like Nationwide and Allstate have been in business much longer than companies like Mileauto and Metromile. Older companies are typically able to file and pay out claims quicker and more easily than newer companies and are often more financially reliable. 

Pay-per-mile car insurance plans are a relatively new product, so only a few insurers offer them. The top four pay-per-mile insurance companies are Nationwide, Allstate, Metromile, and Mileauto. Each of these companies offers competitive rates, with Metromile being the cheapest for an average policy.

While car insurance you pay when you drive is available in many states, it isn’t available in all. Check with your desired insurer to ensure they offer pay-per-mile car insurance in your state.

With most companies that offer auto insurance based on mileage driven, you’ll receive a device that plugs into your car to track the miles you’ve driven. The act of collecting data via a device that plugs into your vehicle is called telematics. The data your insurer collects through telematics will be sent to them and stored in your account with your insurer, accessible to you at any time online. 

However, be wary of using telematics to track your miles with your insurance company if you don’t always practice safe driving habits. Telematics collect data about your driving habits while collecting data about miles you’ve driven. If you frequently speed, accelerate or brake quickly, or drive late at night, this data may be used to increase your insurance rate instead of decreasing it.

Many programs for car insurance based on mileage have a daily mileage cap of about 250 miles. The daily mileage cap only means that you won’t pay per mile after 250 miles driven in one day. So, if you’re planning a road trip that exceeds 250 miles daily, don’t worry about exceeding the allotted daily miles.

While it may seem like your insurance is doing you a favor by covering any number of miles over 250 traveled in one day, you may end up paying more for your car insurance if you hit or exceed 250 miles several times in one month than the average person would pay for a month of coverage with a standard policy. Thus, some drivers shouldn’t pay insurance by the mile.

Car insurance pay-per-mile programs may be worth it for some drivers but not for others. It’s only worth it if you drive below the national average of about 13,500 miles annually or about 1,125 per month. 

Most companies have a base rate of about $30 per month for auto insurance by miles driven, plus about $0.06 per mile. If you drive 1,125 miles per month, you’ll pay about $98, but if you drive any more than the national average, your rates may start to go above the national average rate for a standard, full-coverage policy. 

Thus, pay-for-what-you-drive insurance is excellent for people who drive less than 35 miles a day but not so great for those who drive more. 

Car insurance that operates on a pay-per-mile schedule may also be worth it for those looking for the best savings on their car insurance. Out of all the coverage options, pay-per-mile is consistently the cheapest car insurance, or it at least rivals the savings associated with a liability-only policy without sacrificing coverage. 

As long as you consistently drive under 1,125 miles per month (the national average), mileage-based auto insurance is a great way to help you save money on your premiums. 

While insurance for miles driven is relatively new, users have still had quite a few years of experience with the top four companies that offer this program. The reviews for by-the-mile insurance are primarily positive, as most policyholders are satisfied with their extensive coverage at a low cost.

However, some users report frustration with the GPS device their insurer sent to track their location, saying the device stopped working after a few months. Some policyholders also don’t feel that the program provides enough savings for the extra work (the telematic device) to be worth it. 

Similarly, some by-the-mile insurance programs inadvertently turn into pay-how-you-drive insurance programs, which may not be ideal for some drivers. Those who take risks behind the wheel may end up paying more for their coverage while using a telematics device that collects driving data if insurers look at driving habits in addition to miles driven. 

When considering switching your car insurance to pay-per-day insurance, it’s crucial to shop around for policies before you buy. Feel free to use our free quoting tool, or contact us directly at 833-255-4117 or email agent@clovered.com with any questions about pay-per-mile insurance.