Car insurance can be a major monthly expense, and it’s required in almost all states. The financial burden can seem particularly unfair if you just don’t drive a lot. Several insurers recognize this and they’ve come up with a solution: pay-per-mile auto insurance.
It’s an option that gives you some control over your auto insurance premiums because you're charged based on how many miles you drive. You get the same coverages as you would with any other type of policy.
This isn't the same as the low-mileage discounts that some insurers also offer. A discount is a percentage off your insurance premium if you drove less than a certain number of miles in the previous year – all year. A pay-per-mile car insurance policy is day by day.
How Does Pay-Per-Mile Insurance Work?
Many people who work from home are low-mileage drivers. You have to drop your work off at your employer’s location on Friday. The office is six miles from your driveway. You pass your grocery store on the way, so you can take care of your shopping en route. You’ll pay for 12 miles on Friday, not a blanket premium that remains unchanged whether you drive 50 miles all month or 750.
Pay-per-mile car insurance is made up of two components: a per-mile rate, and a daily base rate. You would only pay the daily rate if you never left home on Thursday, and some insurers won’t even charge you that if you don’t drive at all on a given day. You’re not charged the per-mile rate unless and until your tires actually begin turning. This can be a good thing if you become stuck in traffic for some reason – you won't have to pay the per-mile rate if you just sit there and idle. Otherwise, you would pay your daily rate, plus your daily miles multiplied by your per-mile rate.
How your miles are logged in can vary by insurer. Most will provide you with a little device you can install beneath your steering column, and no, you don’t have to pay for it. It begins recording your mileage as soon as you put your car in drive. Allstate's device records some other things, too. It tallies up incidents of things like sudden braking, your speed, where you drove and the time of day when you drove there. But at least one insurer lets you simply snap a picture of your odometer instead.
It’s Not Available in All States
Now the bad news: This type of insurance isn’t available in all states. Allstate offers a pay-per-mile option in 16 states, many of them in the eastern part of the country. But Nationwide’s SmartMiles option is available in 40 states. A policy offered by Metromile can be had in eight states, but Mile Auto can only be had in three states: Oregon, Illinois and Georgia.
As of January 2021, only these four insurance companies offered pay-per-mile car insurance. These numbers are by no means carved in stone, however. More and more insurers are launching these policies, so reach out to your existing company to find out what, if any, mile insurance policies they offer. Insurers must get permission from states to issue these policies there. That can happen at any time, and they continue to try to do so to add to the areas they serve.
How Much Does This Cost?
You’ll almost certainly pay much less for pay-per-mile insurance if you don’t drive much, but some of the same factors will go into determining your pay-per-mile car insurance rates as with a traditional policy. Your driving history will be taken into consideration, as will your age and the type of vehicle you’re plugging that mileage device into. Insurers in some states will base your rate at least partly on your credit score, and car insurance is just more expensive in some states than in others. It can pay to get a few insurance quotes based on your own personal factors and compare the pricing.
Read More: Does My Credit Score Affect My Car Insurance?
Insurance.com indicates that the daily base fee is usually somewhere in the neighborhood of $1 a day. Yes, you read that right: $1. The per-mile fee is typically just pocket change, literally a few cents. And Nationwide will give you an additional discount of up to 10 percent if your mileage-tracking device tells them that you’re driving very safely. Metromile will discount your bill if you install an anti-theft device. Metromile will give you a discount if you insure multiple household cars, but they must each have their own devices.
How you pay can depend on your insurer. Allstate Milewise requires that you keep a credit card number on file. You’ll fund your insurance account with a minimum balance, and your premium fees are charged to your card when and if your balance falls below that minimum, usually within a few hours after you complete your trip.
The bottom line is that if you want to pay less for car insurance, you can. Just drive less. Consolidate your errands and your to-do list when you leave home when at all possible. Hit that grocery store on the way to your employer’s office rather than go out again to grab a box of cereal.
Disadvantages of Pay-Per-Mile Insurance
How could something this reasonable be wrong? It might be difficult to nail down your exact monthly bill if your driving habits tend to shift from time to time. You probably won’t be able to do firm, long-term budgeting, like relying on a monthly rate that’s always just $45 a month.
Read More: How to Create and Maintain a Budget
And not every car is compatible with the onboard diagnostics - obd-ii mile-counter gadgets. Vehicles manufactured after 1996 generally are, except some diesel-powered and hybrid vehicles, but older wheels might not give you the option.
Is Pay-Per-Mile Insurance for You?
It all comes down to your lifestyle and your driving habits. This type of insurance can be a great option if you rarely get behind the wheel. It could be optimal even if you don’t work from home if your work location is only a handful of miles away, and you can take care of those errands on your mini-commute. It could be perfect for a stay-at-home parent, always assuming that you’re not prone to driving the kiddies to the next county on a regular basis to visit the park there. This type of insurance program might be suitable for college students and retirees as well.
Read More: How to Make Money as a Stay-at-Home Mom
But what if you’re a bit of a traveler? What if you like to throw a few possessions into your backseat and take off for parts unknown once in a while? This type of auto insurance policy might still be suitable for you. Some insurers cap your miles per day, and you’re not charged if you go over them. It’s a reasonably high limit, too, usually about 250, although Metromile’s cap is just 150 in New Jersey. Nationwide calls this its “road trip exception.” Your insurance for the month you hit the highway will still cost you more regardless.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.