Pay-Per-Mile Auto Insurance: What You Should Know

Pay-per-mile auto insurance is one way to save on your auto insurance rates if you don't drive very much. Most pay-per-mile programs are only available to those who drive less than 10,000 per year. These policies have a base rate that is often lower than standard auto insurance policies and an additional per-mile rate.

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP® Joel Ohman

UPDATED: Feb 28, 2022

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Key Takeaways

  • Pay-per-mile auto insurance is a way for low-mileage drivers to save money on their monthly rates
  • Many eligibility requirements will require drivers to drive 10,000 miles per year or less in order to obtain this type of coverage 
  • Not all insurance companies offer pay-per-mile insurance, and those that do may not offer coverage in all 50 states 
  • Drivers who may benefit from pay-per-mile insurance include those who typically use other forms of transportation, have a lease with strict mileage limits, or car owners who work remotely 

When did you last fill your car up with gas? If it’s been a while, then you could be saving extra on gas but overspending on auto insurance. 

These days, there are so many options to get from one place to another. And you may be driving your own car less often or have little reason to drive your vehicle for long trips. If that’s the case, then you may want to consider switching to pay-per-mile auto insurance.  

Unlike traditional policies, pay-per-mile insurance charges you based on how far you drive and is ideal for those with cars they rarely drive. 

If you’re a low-mileage driver looking to save on insurance, then this usage based insurance may be the right option for you. Before you decide, read this guide to learn about how pay-per-mile insurance works and how to use our free insurance quote comparison tool to maximize savings. 

What to Expect with Pay-Per-Mile Insurance

According to the U.S. Department of Transportation, the average annual miles for a typical driver is 13,500. But, those who drive 10,000 miles or less may qualify for reduced insurance rates. It all depends on the insurance company since each one has varying rules and regulations.

While traditional insurance companies charge based on the risk of an accident and potential medical bills, pay-per-mile auto insurance has two main components:

  • A base rate. This is a daily or monthly charge that is based on your age, location, credit, and driving history. It is determined in a similar way to that of a traditional car insurance policy. 
  • A per-mile rate. This rate is determined by how far you drive. Your insurer will provide a device to accurately measure the miles you drive and charge you a few cents for every mile. 

When you drive infrequently, you lower the risk of getting into an accident and reduce your car’s level of wear and tear. Because of that, you can end up saving a significant amount of money when you make the switch to the usage based insurance.

Insurance Companies with a Pay-Per-Mile Option

Pay-per-mile insurance programs are still somewhat of a novel idea for a low mileage driver and, as such, are not always readily available across the country. In fact, the main drawback of this option is that not a ton of companies offer it. Plus, those that do offer it may not have it available in all 50 states. 

Here are some insurance companies that offer pay-per-mile insurance:

  • Nationwide Smartmiles
  • Mile Auto
  • Metromile
  • Allstate Milewise

Similar to traditional insurance rates, the costs for pay-per-mile depend on several factors, including who you are as a driver, as well as the company you’re insured by.

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The Cost of Pay-Per-Mile Insurance

Pay-per-mile insurance appeals to infrequent drivers because it offers affordable auto insurance that better reflects their driving habits. Part of the cost will depend on your driving history and background, such as your location, gender, and marital status. Other factors that come into play when determining monthly rates may vary depending on the insurance company. 

For example:

  • Metromile charges a base rate and a per-mile rate of around six cents per mile. 
  • Allstate Milewise charges a daily base rate and a per-mile rate as well. But, once your account reaches the minimum balance, your credit card will be charged to refill it.

The average per-mile rate is typically five to eight cents per mile. So, the combination of your per-mile rate plus your base rate will determine your monthly costs. Those costs, of course, are subject to change based on things like location and driving history.  

Who It Benefits

How do you know you’d benefit from pay-per-mile auto insurance?

In general, anyone who drives less than the average driver per year may find it beneficial to make the switch from traditional insurance. According to Forbes, an infrequent or low-mileage driver could be anyone who:

  • Prefers or frequently uses other modes of transportation such as subways, taxis, mass transits, or walking
  • Works remotely from home or doesn’t often commute to work
  • Lives on a college campus as a student
  • Has a car lease with strict mileage restrictions
  • Owns an extra car that they drive infrequently

While you may drive below the yearly average in the United States, you still may not be considered a low-mileage driver. However, some companies make it easier than others to track your driving habits. With Metromile, for example, you can download their app to monitor your mileage and test out their program if you’re curious about how much you can save.

Low-Mileage Drivers

As mentioned, some insurance companies may set an annual maximum in order to be eligible for reduced, pay-per-mile insurance rates. 

So what, exactly, qualifies as a low-mileage driver?

Generally, an individual who drives less than 10,000 or 7,500 miles per year. However, that limit varies with each company. Some may consider a low-mileage driver to be anyone under 12,000, while others set the bar at 5,000 miles per year.

Nationwide, for example, sets their limit at less than 8,000 miles annually while Mile Auto’s limit is less than 10,000 miles per year. It’s best to check with the insurance company to see their exact policies and limits so you can guarantee that they’re the right fit for you. 

How Mileage is Measured

When comparing companies and their pay-per-mile insurance programs, you may be interested in knowing how they’ll track your mileage. You may prefer one company’s method over another.

Here’s a look at how different companies measure your car’s mileage:

  • Allstate Milewise. This company offers a device that you can plug into your car. It monitors your driving habits and spending through its mobile app. 
  • Mile Auto. Instead of installing a device into your car, this company has a system that will send you monthly reminders through texts and emails for you to monitor your odometer reading. All you have to do is send in a photo of your odometer. 
  • Metromile. This insurer provides a device that you plug into your car. You aren’t required to pair your smartphone or Bluetooth for it to work. 
  • Nationwide SmartMiles. This company also uses a small device to monitor your car’s mileage.

If the insurance company provides you with a device, it is typically plugged into a port located near your steering wheel. It may be able to detect every aspect of your driving, from how fast you’re driving to the time of day. With Nationwide’s SmartMiles’ device, it can monitor how safely you’re driving. In this case, you may even be eligible for a 10% discount for good driving. 

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Choosing the Best Company for You

When debating which company to choose for your pay-per-mile insurance, consider these factors:

  • Your insurance needs. Depending on your state’s requirements, some drivers may need more coverage than others. Other policyholders may require insurance in multiple categories, such as a business or property. If this is the case, you may be able to benefit from companies that offer bundling options. 
  • Third party ratings. Cross-evaluate insurance companies using an unbiased source. This can help you learn more about customer satisfaction, average insurance cost, and levels of complaints. 
  • Your location. While there are benefits of owning a policy with a nationwide insurance company, some drivers may prefer the availability of in-person assistance from a nearby, mid-sized company. 

Remember that the company’s program may be unavailable in your state. 

As an example, Mile Auto is only available for residents in:

  • Arizona
  • California
  • Georgia
  • Illinois
  • Ohio
  • Oregon
  • Texas

On the other hand, Nationwide Smartmiles is the most available insurance company option, but not for residents in:

  • Alaska
  • California
  • Delaware
  • Hawaii
  • Louisiana 
  • Massachusetts
  • New Jersey
  • New York
  • North Carolina
  • Oklahoma

Other Ways to Save

If you want to save money on your auto insurance without sacrificing coverage, pay-per-mile insurance is an ideal place to begin. But, there are more ways to lower your insurance costs.

There are many ways to lower you auto insurance besides having a good driving record, you can:

  • Ask for a higher deductible.
  • Compare insurance rates with others for the best deal.
  • Maintain a good credit history.
  • Consider a group insurance option if your provider has it.
  • Buy your home and auto insurance products from the same insurance company.
  • Lower the coverage on older, less valuable cars.
  • Ask about discounts such as low mileage discounts.

Low mileage discounts and pay-per-mile insurance are completely different options. The discount will only take away a slight percentage of your policy costs. Pay-per-mile is your insurance rate based on how often and how far you typically drive. The better option for your budget and your lifestyle depends on other factors.

Signs It Might Be Time to Switch

Now that you’ve learned everything there is to know about pay-per-mile insurance, you may be wondering if you should make the switch. How do you know if you should go from traditional insurance to pay-per-mile insurance? 

While you weigh your options, consider these questions:

  • How often do you drive your car? Is it fewer than 10,000 miles annually?
  • How do you commute to and from work?
  • Do you use other modes of transportation or live in a walkable area?
  • Do you receive higher insurance rates because of your age and/or driving record?

If you use your car rarely and don’t have a long daily commute, then pay-per-mile is most likely the most cost-effective option. But, the best way to save is to compare rates between multiple insurers.

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Compare Rates Before You Switch

Ready to make the switch? If so, start comparing quotes from different insurers. With a variety of insurance companies out there, it’s easier to say you want affordable car insurance than it is to actually find it.

However, a quote comparison tool can help you to narrow down the list and find a company that has everything you’re looking for.

When you switch to pay-per-mile insurance and use a comparison tool, you can guarantee that you’re not overpaying for your auto insurance. To get started, use our free, three-step tool to see how different companies and rates stack up. All you need is your ZIP code and car information. In just a few minutes, you can start comparing quotes and saving money. 

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