Pay-Per-Mile Car Insurance: Is It Worth It?

What is Pay-Per-Mile Car Insurance?

If you don’t drive often because you’re retired, stay at home with your children, work remotely, or use public transportation, for example, pay-per-mile car insurance might be worth exploring. It’s exactly what it sounds like: an auto policy that lets you pay for the mileage you drive. 

With pay-per-mile insurance, instead of a traditional plan where you pay predetermined premiums regardless of how often you drive, you can potentially save hundreds or even thousands of dollars on your premiums. In fact, our best car insurance providers offer coverage options that cater to various driving habits, including pay-per-mile plans. Let’s take a closer look at what pay-per-mile insurance is and how it works.

How Does Pay-Per-Mile Insurance Work?

Not all car insurance companies offer pay-per-mile auto insurance. However, the ones that do usually require you to track your mileage with an app or in-car device. Most insurers with pay-per-mile programs charge a base rate, which is determined by factors like your age, location, gender, vehicle type, and driving records plus a per-mile fee.

“For example, a pay-per-mile policy may charge a base rate of $1.50 per day or $45 per month, plus an additional $1 per mile driven,” explains Rachael Brennan, licensed insurance agent and insurance reporter at U.S. News & World Report.

 “Typically, there is an assessment period where the insurer tracks the amount of miles through a vehicle device or mobile app to determine a baseline for miles driven. From there, they record your mileage and adjust your premium on a monthly basis,” details Ben Freeman, insurance agent at Riseson Insurance.

With pay-per-mile car insurance coverage or usage-based insurance, your monthly premiums will likely vary. For example, if you drive more in April than May, you can expect higher rates in April. On the flipside, if you don’t drive as frequently in April, you’ll spend less on your auto insurance. 

Benefits of Pay-Per-Mile Car Insurance

As long as you’re a low-mileage driver, you can enjoy these advantages with a pay-per-mile auto insurance:

• Potential Savings: If you’re someone who drives much less than the average driver due to your age, lifestyle, work situation, or other circumstances, you can save a great deal of money and still ensure you have sufficient coverage. With usage-based insurance programs and other optimizations, you can find ways to cut your car insurance costs.

• May Offset Other Rating Factors: While insurers still consider non-driving rating factors like credit history or age when determining your premiums for a pay-per-mile plan, they won’t weigh as heavily as with a traditional car insurance plan. This is a huge plus if you’re someone who tends to pay higher rates because you’re young or have poor credit, for example. 

• Flexibility: Your rate will potentially fluctuate based on how much you drive. Therefore,  you have a life change that means you are driving even less, you will see your monthly insurance costs automatically go down. 

Who Should Consider Pay-Per-Mile Insurance?

According to the Federal Highway Administration, the average U.S. driver averages almost 14,000 miles per year. If you drive 10,000 to 12,000 miles or less, a pay-per-mile policy should be on your radar. This type of insurance coverage is becoming increasingly popular for these types of individuals: 

• Seniors: Many older adults don’t drive often because they’re retired or have limitations like poor vision and slow reflexes that limit their ability and desire to get behind the wheel. Pay-per-mile insurance can help them lower their car insurance costs.

• College Students: College students, especially those who live on campus, don’t drive as often as high school students or college graduates. A pay-per-mile policy may be a good option if they don’t want to overpay for coverage.

• Stay-at-Home Parents: It’s not uncommon for stay-at-home parents to stick to local driving. With pay-per-mile insurance, they don’t have to pay the same price for coverage as a busy working professional who is always on the road.

• Remote Workers: Now that remote or hybrid work is common, many people no longer have to commute to and from an office five days a week. Pay-per-mile coverage can save them money.

Potential Drawbacks of Pay-Per-Mile Insurance

While pay-per-mile auto policies come with a few noteworthy benefits, they’re not perfect. Perhaps the most significant drawback of this type of car insurance is the premium fluctuation that can make it difficult to budget for your coverage. You may pay $20 one month and $40 the next. 

Another issue is the availability of pay-per-mile programs. Since they’re fairly new to the car insurance market, not all auto insurance companies offer them. You’ll have to shop around to find insurers with pay-per-mile plans.

Lastly, pay-per-mile insurance usually requires you to drive with a mobile app or in-car device that can track your mileage and other factors like your speeding and braking behaviors. This may pose privacy concerns and be problematic if you don’t like the idea of your insurance company “driving with you.”

How to Choose the Right Pay-Per-Mile Policy

If you decide that a pay-per-mile car insurance policy makes sense for your unique situation, follow these steps to secure the best coverage. 

• Calculate Your Mileage: Track how much you drive on a monthly basis. Then, use this information to compare costs between a traditional policy and a pay-per-mile policy to see which option is most affordable. Pro tip: If the amount you drive varies from month to month, track for a few months to gain an average.

• Explore Different Insurers and Their Tracking Methods: Pay-per-mile programs vary greatly by insurer. “Make sure you shop around and consider all the options at your disposal,” advises Freeman. You’ll find that some pay-per-mile plans require more familiarity with tech and some are better for those who value privacy and want to limit what data is shared with their insurance company.

• Consider Telematics: Telematics policies are similar to pay-per-mile policies in that they use real driving data to determine rates. However, telematics policies focus on how you drive, not just how much. They measure speeding, aggressive braking, and more. If you’re both a safe driver and a low-mileage driver, a policy that combines both might help you save even more. 

• Consult an Insurance Agent: If you’re unsure of which pay-per-mile policy is best for you, don’t hesitate to ask for guidance. An independent insurance agent can do the heavy lifting for you and present you with options that work for your unique budget and driving habits.

FAQs

1. What is pay-per-mile car insurance? 

Pay-per-mile auto insurance lets you pay for the miles you drive. If you drive less one month, you won’t pay as much for your coverage. On the flipside, if you drive more, you can expect a higher monthly premium.

2. Who should use pay-per-mile car insurance? 

Pay-per-mile policies are ideal for low-mileage drivers, typically those who drive between 10,000 to 12,000 miles per year. If you’re an infrequent driver because you’re retired, work remotely, or use public transportation, for example, a pay-per-mile plan might be a good fit.

3. Can you save with pay-per-mile insurance?

As long as you don’t drive very often, you can lower your car insurance costs with a pay-per-mile auto policy. This is particularly true if you’re used to higher premiums with traditional car insurance plans because of traffic violations or inexperience. If this doesn't sound like the right fit for you, consider exploring multi-policy discounts and try bundling your coverage.