If you just drive on occasion, you may be wondering if a normal auto insurance coverage is a waste of money. In most circumstances, it isn’t since, with the exception of New Hampshire, all US states mandate auto insurance.
However, if you drive a low-mileage vehicle, it’s worth looking into pay-per-mile car insurance as an alternative to a regular policy that can help you save money on auto insurance.
Yahoo Finance reveals how pay-per-mile coverage works, the benefits and drawbacks to be aware of, and whether switching is worthwhile.
Understanding pay-per-mile insurance
Pay-per-mile auto insurance is not the same as standard auto insurance. You pay a base fee and a per-mile rate instead of a set rate based on your location, car, driving history, and other criteria. Your monthly base rate is set by your demographic information and driving history and remains consistent. Your per-mile charge, on the other hand, may vary based on how many miles you drive each month.
Pay-per-mile coverage could save you money if you’re a low-mileage driver who works from home, commutes a small distance, or frequently uses public transportation. It may also be appealing to college students or retirees. However, in order to save money on auto insurance, you need travel less than 10,000 to 12,000 miles every year.
Pay-per-mile policies differ by insurer, although many provide both liability-only and full coverage insurance. These airlines are popular pay-per-mile options:
- Mile Auto
- Nationwide SmartMiles
- Allstate Milewise
Pros of pay-per-mile insurance
- Cost savings: The most significant advantage of pay-per-mile insurance schemes is the possible savings over a standard auto insurance policy. Low-mileage drivers might save a lot of money on insurance.
- Flexible coverage: You’ll pay the same monthly or yearly auto insurance cost with a regular policy. However, pay-per-mile coverage is more adaptable, and your premium might be significantly lower if you drive less in a given month.
- Potential discounts: Certain vehicle insurers provide discounts to customers who have pay-per-mile insurance. For example, if you constantly observe the regulations of the road, you may be eligible for a safe driving discount.
Cons of pay-per-mile insurance
- Limited availability: Pay-per-mile auto insurance is not offered in every state, and availability varies by insurer. Similarly, your vehicle may not be compatible with the telematics devices required by many insurers for pay-per-mile coverage.
- Not for high-mileage drivers: Pay-per-mile vehicle insurance is likely to be more expensive than a conventional motor policy if you drive more than 10,000 to 12,000 miles each year.
- Privacy concerns: Pay-per-mile insurance companies often require you to install a telematics device in your vehicle to track your mileage and driving behaviors, such as your speed, miles, time of day, driving events, and even your location. Not everyone wants their vehicle insurance company following them around like that.
- Coverage limits: While some pay-per-mile policies may allow for long-distance road trips, this isn’t always the case. If you take road trips on a regular basis, study the fine print before purchasing pay-per-mile coverage.
How pay-per-mile car insurance works
If you choose pay-per-mile insurance, you will typically be required to install and use a telematics device in your vehicle to measure your mileage and driving habits. These little devices are frequently plugged into your car’s OBD-II port located beneath the steering wheel. As an alternative, some insurers may allow you to take monthly images of your odometer or download their mobile app for tracking.
After you’ve set up tracking, you can drive as usual, and your insurer will bill you a fixed base rate and a variable, usage-based mileage premium each month. Assume you pay a $35 base rate and $0.06 per mile in a given month. Your insurance expenses would be as follows if you drove 135 miles that month:
$35 + ($0.06 x 135) = $43.10
Keep in mind that if you drive a lot in a particular month, your mileage charge may rise depending on your auto insurance provider. Before switching from a normal insurance policy to a pay-per-mile program, be sure you are familiar with the premium structure.
Is pay-per-mile insurance worth it?
Pay-per-mile insurance can help certain drivers save money on auto insurance. However, there are certain critical points to consider. If you’re thinking about switching to pay-per-mile coverage, find out if it’s available in your area and which insurers provide it.
You should also assess your total driving patterns and mileage to see if pay-per-kilometre makes more sense than a basic auto policy. Consider whether your driving habits alter from month to month. If it appears to make sense, estimate possible cost savings by reviewing your current policy and obtaining auto insurance quotes from various providers.
Finally, think about which coverage alternatives you desire. Do you, for example, drive an older, high-mileage vehicle? If this is the case, a liability-only coverage may be appropriate. If your vehicle is newer, a full coverage policy that covers liability, comprehensive, and collision insurance may be sufficient.