Car insurance premiums have traditionally been calculated based on factors such as the value of your vehicle, your driving history, and where you live. More recently, some insurance companies have offered another alternative—pay-per-mile car insurance, based largely on how much you drive. This new way of calculating insurance premiums can favor drivers who are on the road less often. Here is how it works and how to know if it's right for you.
- With pay-per-mile car insurance, your monthly premium is based in part on the number of miles you drive.
- If you don't use your car much or drive short distances when you do, a pay-per-mile policy might save you money.
- Pay-per-mile policies are available from major auto insurance companies and insurers specializing in this niche market.
How Does Pay-Per-Mile Car Insurance Work?
With a pay-per-mile policy, drivers typically pay a monthly base rate, such as $29, plus a certain charge per mile that they drive. Like traditional auto insurance, the base rate may factor in the driver's location, vehicle, and demographic information. The per-mile charge is often 5 or 6 cents or so.
As a result, the driver's monthly premium will vary according to how much they drove during that period.
Pay-per-mile car insurance shouldn't be confused with what's often referred to as black box or telematics auto insurance, although there are some similarities. That type of policy, which involves an app or device installed in your car, is partly based on the number of miles you drive but also factors in other driving behaviors, such as how fast you drive, how hard you brake, and the time of day you typically drive.
Pay-per-mile policies are available from many traditional auto insurance companies as well as insurers that specialize in this market.
Who Should Get Pay-Per-Mile Car Insurance?
Generally speaking, consumers who drive infrequently or drive very short distances might benefit from switching to pay-per-mile insurance. That could include college students, retirees, people who work from home, or people who use public transportation for most of their travel.
People who own more than one car might also consider pay-per-mile insurance for vehicles they rarely drive. Pay-per-mile insurer Mile Auto suggests that if you drive fewer than 10,000 miles per year, you could benefit by switching over from a traditional car insurance policy.
Another alternative if you have a traditional auto policy and find you aren't driving much is to inquire about discounts. Some insurers will provide a discount if you drive less than a certain number of miles per year (usually between 8,000 and 10,000).