What Is Pay-Per-Mile Insurance?

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DEFINITION
Pay-per-mile insurance is a type of auto insurance in which your premium amount is based on the number of miles you drive.

Pay-per-mile insurance is a type of auto insurance in which your premium amount is based on the number of miles you drive. It’s best for people who don’t cover much mileage each month. 

Learn more about how this type of coverage works, the pros and cons, and how to decide if pay-per-mile insurance might be a good fit for you.  

Definition and Examples of Pay-Per-Mile Insurance

Pay-per-mile insurance is a type of car insurance policy with a premium that varies based on how many miles you drive. This type of insurance also typically charges a base rate in addition to a per-mile rate. 

  • Alternate name: Mileage-based insurance

For example, say your daily base rate is $1.50 and your per-mile rate is $0.06. If you drive 10 miles in one day, you’d pay $0.60 plus $1.50, for a total of $2.10. After a month of similar driving, your premium would be about $63. 

The price per mile might look minuscule, but it can add up quickly if you drive a lot. That’s why pay-per-mile insurance is typically best for people who drive less than average. If you’re on the fence, it’s a good idea to also request a quote for a policy with unlimited mileage. 

How Pay-Per-Mile Insurance Works 

Pay-per-mile insurance has a few key components that come together to make it work. Here’s what you should know. 

The programs aren’t available in all states, so check each program’s availability before you spend too much time researching your options. 

Premium Rate Calculation

Your premium rate is often divided into two parts: a base rate and a cost per mile. To calculate the amount you pay, the insurer will multiply the cost per mile by the number of miles you drove, then add the base rate. 

Let’s say you’re looking into new auto insurance options. You request quotes from Nationwide, which offers you two options:

  • A traditional policy with unlimited mileage for $133
  • A pay-per-mile policy with a base rate of $60 per month and a per-mile rate of $0.07 

By crunching the numbers, you can see that if you drive less than 1,042 miles per month or about 34 miles per day, the per-mile plan will be cheaper. 

Similar to the way they’d issue a traditional car insurance policy, insurers will consider various factors when determining your base rate and rate per mile such as your age, location, driving history, and vehicle type.

Mileage Tracking 

To track how many miles you drive, insurers send you a device that plugs into your vehicle. 

The device may not be compatible with all vehicles, so before you sign up, be sure to check with your insurer about any vehicle requirements.

Billing

How you’re billed for a pay-per-mile policy varies by insurance provider. A common approach is a postpaid model, where you’re billed monthly based on the number of miles you drove the previous month. However, some insurers, like Allstate, use a prepaid model in which they deduct the cost of each trip from an existing balance.

Online Mileage and Premium Tracking

Insurers may also enable you to track your mileage, premium, and more online or through their app. For example, you could see your month-to-date mileage and premium, as well as how they compare to previous months. This online tracking option helps you see if you’re over budget, so you can scale back your driving for the rest of the month. 

Maximum Daily Mileage Limits

These programs also often come with maximum daily mile limits. That means if you take a long road trip, your daily mileage costs won’t skyrocket. For example, Liberty Mutual caps daily miles at 150, and Nationwide tops out at 250 miles.

Extra Discounts

While tracking your speed, some insurers can also collect driving behavior data that helps them analyze your risk level. As a result, some companies offer safe driving discounts to policyholders who exhibit responsible driving habits

Pros and Cons of Pay-Per-Mile Insurance

Pros
  • Low-mileage drivers can save money 

  • Tracking mileage is easy

  • Gain insights into driving behaviors and potentially earn a discount


Cons
  • Could be more expensive 

  • Not available in all states

  • Requires vehicle tracking


Pros Explained

  • Low-mileage drivers can save money: If you drive less than the average driver, you could pay less for pay-per-mile insurance than you would for a traditional policy. 
  • Tracking mileage is easy: Tracking devices and apps make it easy to keep tabs on your mileage, which can help you stay under budget. 
  • Gain insights into driving behaviors and potentially earn a discount: You may also receive feedback on your driving behavior or the driving behavior of others in your household. Some insurers will offer a discount for safe driving habits.

Cons Explained 

  • Could be more expensive: If you end up driving more miles than you expected, your pay-per-mile plan could actually cost you more than a traditional policy. 
  • Not available in all states: Pay-per-mile programs aren’t available in all states with all insurers, so they may not be available in your area. 
  • Not compatible with all vehicles: The tracking devices are often only compatible with vehicles newer than a certain year, so not all drivers will be able to use them. 
  • Requires vehicle tracking: You will need to install a tracking device in your vehicle, which may not appeal to all drivers. 

How To Get Pay-Per-Mile Insurance

If pay-per-mile insurance sounds right for you, check with your current auto insurer to see if it’s available in your area. Also, it’s a good idea to shop around with the leading car insurers to see which one offers the best overall value for your situation. 

When comparing policies, be sure to consider the base rates, cost per mile, maximum daily mileage limits, billing models, and other perks like safe driving discounts. 

Key Takeaways

  • Pay-per-mile auto insurance bases your premium on a low base rate plus a set rate per mile.
  • Mileage tracking requires you to install a device into a compatible vehicle. 
  • Mileage-based plans can help you save money on auto insurance if you drive less than the average driver. 
  • Pay-per-mile insurance could be a good choice if you work from home, commute to work via a different method, or have a car you rarely use.
  • These types of policies aren’t available in all states or for all vehicles, so they won’t be accessible for all drivers. 

Article Sources

  1. Nationwide. “SmartMiles,” see “How SmartMiles Works.”

  2. Nationwide. “SmartMiles,” see “What You Get With SmartMiles.”

  3. Liberty Mutual. “Liberty Mutual ByMile,” see “Auto Insurance for Low-Mileage Drivers.”