Pay-Per-Mile Car Insurance: What You Need to Know

If you have a car but barely drive it (especially during the pandemic), you might find yourself wondering if there’s a cheaper car insurance option beyond traditional coverage. Pay-per-mile insurance might save you money — up to 40% in some cases — but only if you truly don’t drive regularly.

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Pay-per-mile car insurance lets you pay for coverage based on how many miles you drive. Because of this, it’s best suited for people who aren’t driving a lot over the long-term.

Some companies, like Metromile, specialize in this type of insurance, while a few large insurers, such as Nationwide, also offer a per mile option. This is different from a low-mileage discount offered by some auto insurers. Instead of a percentage off your traditional policy, pay-per-mile car insurance determines your rate based on how far you drive.

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Pay-per-mile insurance is a type of usage-based insurance. Usage-based programs use telematic technology to track your driving behavior with a mobile app or device that plugs into your car’s diagnostic port to create your customized car insurance rate.

There are two types of usage-based insurance:

• Pay-per-mile, which creates a rate depending on how many miles you drive.

• Pay-as-you-drive, or pay-as-you-go, which creates a rate depending on your driving habits. Some programs may increase your rates if you have bad driving habits.

Pay-per-mile insurance is best suited for people who aren’t driving much for a long period of time, including drivers who:

• Work from home.

• Are in college.

• Don’t drive because they take mass transit, walk or use another alternative mode of transportation.

• Have a second vehicle they rarely use.

Americans drive around 13,500 miles a year on average, according to the U.S. Department of Transportation's Federal Highway Administration. It’s difficult to know, though, how little you need to drive to benefit from pay-per-mile insurance.

Mile Auto, a pay-per-mile insurer, states on its website that if you drive less than 10,000 miles a year you’re likely paying too much for auto insurance. Nationwide notes you’re most likely to benefit from its pay-per-mile insurance program if you drive less than 8,000 miles annually.

Pay-per-mile insurance has a base rate, which is the same each month, then a per-mile rate, which typically has a cap, such as 250 miles per day.

Your base rate is determined like a traditional car insurance quote. Factors such as gender, age, and car make and model are considered to create a rate. Although your rate is calculated differently, you get the same coverage as a traditional policy and aren’t strictly limited to specific coverage such as liability insurance.

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Companies use telematics to track how far you drive. Some programs like Nationwide Smartmiles also look at driving habits to determine if you’re eligible for a discount.

Likewise, Metromile customers in Oregon are also eligible to earn a discount by using the company’s “Ride Along” feature. The program tracks your driving for about two weeks through its app. Based on the results, the company will estimate your monthly bill. Metromile also looks at driving behavior in Arizona, Illinois, Oregon and Virginia to determine your pay-per-mile and base rate upon renewal.

If you’re not comfortable with sharing data, Mile Auto offers pay-per-mile insurance without using a plug-in device. Instead, you’ll need to send a photo of your odometer once a month.

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Pay-as-you-drive policies are a type of usage-based insurance that determines your rate by your driving behavior. If you drive a lot, aggressively and in the middle of the night, these programs could increase your car insurance rates.

Commonly tracked driving behaviors include:

• Hard braking.

• Acceleration and speed.

• Time of day you drive (late-night driving may be considered unsafe).

• How often you drive.

• Mileage.

• Cell phone use (if tracked by an app).

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Some telematics programs aren’t usage-based. Rather than setting your car insurance rate on your driving behavior or mileage, these programs use telematics to create a customized discount or give you cash back. For instance, your car insurance rate might be $100 per month, but through a telematics program, you may earn a 10% discount for good driving behavior.

These programs, like Allstate’s Drivewise, don't directly increase (or decrease) your rate. Because of this, there likely isn’t a downside financially. However, your rates may still go up based on traditional factors such as your driving history and location regardless of whether you participate in these programs.

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However, these programs still collect data about your driving habits (including hard braking, acceleration and location), so skip it if you’re uncomfortable sharing this information.

If you decide to use pay-per-mile car insurance or another telematics program, it will differ in many ways from traditional auto insurance. Make sure to ask the following questions before changing policies: