Pros and Cons of Pay-Per-Mile Car Insurance

What Is Pay-Per-Mile Insurance?

A traditional car insurance policy charges a set premium to cover your car if you're involved in an accident that injures someone or damages a car or other property. It can also cover your car if it's stolen, damaged in an incident like a fire or damaged by an object such as a fallen tree.

Pay-per-mile insurance can offer the same types of protection as a traditional car insurance policy. However, instead of paying a set premium, you pay a rate based on how much mileage you rack up. The rate actually consists of two rates: a base rate and a per-mile rate (more on this below).

Should You Get Pay-Per-Mile Insurance?

If you don't put a lot of miles on your car, you might benefit from pay-per-mile insurance. Mile Auto says it makes sense to consider pay-per-mile coverage if you log fewer than 10,000 miles per year.

Motorists who might benefit from pay-per-mile insurance include:

• People with short commutes or who work from home
• Stay-at-home parents
• Part-time workers
• People who rely heavily on public transit
• College students who live on or near campus
• Retirees who no longer commute to and from work

Learn more: How Does Mileage Affect Car Insurance?

How to Calculate Pay-Per-Mile Insurance Costs

So, how is a monthly premium for pay-per-mile insurance calculated? Here's the formula:

Let's say the monthly base rate is $25. If the per-mile rate is 6 cents and you drive 500 miles per month, you'd pay a monthly per-mile rate of $30. That adds up to a monthly cost of $55.

Here's the calculation: $25 + (0.06 x 500 miles per month) = $55

In this example, the monthly cost of pay-per-mile car insurance is $55, but Experian data shows the average car insurance premium is about $192 per month. Keep in mind, though, that $55 versus $192 might not be an apples-to-apples comparison due to variables such as the type of car and the motorist's driving record.

How to Buy Pay-Per-Mile Insurance

Just as you should shop around for traditional car insurance, you should shop around for pay-per-mile insurance. By getting quotes from several pay-per-mile insurers, you can see how different policies stack up based on factors such as cost, coverage and customer service.

Here's a list of some insurers that sell pay-per-mile insurance. Note that some insurers may not provide this coverage in every state.

• Allstate Milewise
• Metromile (owned by Lemonade)
• Mile Auto
• Nationwide SmartMiles

Alternatives to Pay-Per-Mile Insurance

If you're looking to slash your car insurance premium, you've got options other than pay-per-mile insurance. Alternatives to pay-per-mile insurance include:

• Raising your deductible: Increasing your auto insurance deductible from, say, $200 to $1,000 can decrease your premium. However, it will mean a higher out-of-pocket cost if you have to file a claim.
• Adjusting your coverage: If you're driving an older car that's paid off, you might consider dropping comprehensive and collision coverage, for example.
• Hunting for discounts: Insurers offer an array of discounts. For example, you may be able to score a discount for maintaining a clean driving record or signing up for a program that electronically monitors your driving habits. Or you might trim your insurance premium if you now work from home and are driving fewer miles.
• Shopping around: You may be able to find the same coverage at a lower price if you compare quotes from several providers.

Learn more: How to Save on Car Insurance

The Bottom Line

If you drive fewer than 10,000 miles per year, you might consider pay-per-mile insurance. Why? Because you may be able to drive down your car insurance premium while maintaining the same level of coverage you'd enjoy with a traditional policy. However, pay-per-mile coverage comes with some drawbacks, such as limited availability and possible upfront payments rather than monthly payments.