What is pay-per-mile car insurance? | The Simple Dollar

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What is pay-per-mile car insurance? | The Simple Dollar


Between your home office and delivery services, your car is probably getting used less often nowadays. It’s the perfect time to cut unnecessary costs like subscription services and commuting expenses. Wouldn’t it be nice to pay for a service only when you used it? That’s exactly what usage-based auto insurance is. Getting low mileage insurance lets you pay less by only paying for the miles you use. It’s the perfect way to cut costs without getting rid of coverage.

What is pay-per-mile car insurance?

Starting with a base rate that is calculated using factors such as your age, your credit score, your driving history, the kind of car you drive and your gender, insurance providers charge you a monthly premium that is a combination of your base rate and the total amount you drive.

To calculate the latter component, insurers use an in-car device that tracks the number of miles you log each month. These miles factor into your annual mileage, which ultimately becomes a factor—though not a major component—in your overall premium. Taking all of this into account, insurance providers come up with a premium that reflects your driving habits, which is what you end up paying each month. If you don’t drive at all, you pay the base rate. If you do venture out onto the open road, your monthly premium reflects your mileage and includes a daily mileage ceiling above which you won’t be charged.

[Read more: The Simple Guide to Car Insurance]

Pay-Per-Mile Car Insurance Companies

Nationwide SmartMiles

SmartMiles by Nationwide offers the same coverage as a traditional Nationwide car insurance policy with the caveat that its rates adjust each month based on how much you drive. Some special features of Nationwide’s SmartMiles coverage include:

  • Safe driving discounts of up to 10% after the first renewal
  • A “Road Trip Exception” that only charges you for the first 250 miles you drive on any given day
  • Easy-to-use online tools that help you keep track of your mileage and monthly payments

With the exception of a few hybrids and diesel engine vehicles, this pay-per-mile insurance can be used by all drivers with post-1996-model cars.

Metromile

With rates starting as low at $29 per month, Metromile offers an affordable alternative to other car insurance providers. Like Nationwide, Metromile also features a 250-mile per day mileage cap (150 miles per day in New Jersey), which enables infrequent drivers to indulge in guilt-free road trips on the weekend. Metromile offers an extensive list of coverage options, which includes:

  • Rental reimbursement
  • 24/7 Roadside assistance
  • Property damage
  • Bodily injury
  • Comprehensive
  • Under/uninsured motorist
  • Medical payments coverage

Users can select some or all of these car insurance by the mile coverage options as part of one of four different levels of liability protection and may add more than one vehicle to a policy, which saves them money on their base and per-mile rate.

Though Metromile has limited availability (CA, IL, NJ, OR, PA, WA and VA), it offers automatic billing and easy-to-use online resources for handling payments, which makes it an attractive option for users that are residents of states where it is available.

Esurance Pay Per Mile

Pay Per Mile by Esurance offers many of the same functions as the other pay-per-mile car insurance providers listed here. Their premiums, which are paid eight times over a six-month span, are composed of a base and per-mile rate and include a mandatory down payment at the start of each policy term cycle. In addition to this, Esurance charges a $50 cancellation fee if you terminate your policy early, though this can be waived if the policyholder switches to a traditional, unlimited miles Esurance policy.

Generally, most pay-per-mile users are scared away from Esurance’s offerings due to the fact that, for the moment, its Pay Per Mile program is only available to users living in Oregon. This may change in the near future, but for now, if you’re not an Oregon resident, you may need to look elsewhere for your pay-per-mile auto insurance.

Allstate Drivewise

Drivewise by Allstate is different from the norm as far as pay-per-mile insurance programs go. In addition to tracking the number of miles that you drive in a day, it also keeps tabs on how fast you drive, the number of times you brake hard, the time of day that you drive and the areas in which you drive.

Billing is also done a bit different with Drivewise, in that users pay a deposit and then have money deducted from that amount in the form of base and per-mile rates. When the deposit amount gets close enough to zero, users are automatically billed and the deposit gets replenished.

In addition to the standard liability coverage that is offered, Drivewise appeals to drivers because of the low mile limit ceiling—150 miles per day—and the opportunity it gives drivers to save if they keep their miles low.

One thing that drivers won’t be too fond of, however, is Drivewise’s limited availability. As of now, only residents of New Jersey, Oregon and Texas have access to this pay-per-mile service, though this may change soon.

[Read more: The Best Home and Auto Insurance Bundles of 2021)

Who should consider pay-per-mile insurance?

Pay-per-mile car insurance clearly isn’t for everyone. Apart from the aforementioned geographic restrictions that apply to some providers, the per-mile basis on which premiums are calculated makes pay-per-mile insurance an unattractive option for users that drive a lot.

By way of example, a sample rate from Metromile quotes their premiums at least $29 per month as a base rate plus six cents per mile driven. Taking into account the fact that the average American drives 13,476 miles per year, this policy would end up costing users over $1,150 per year, which is more than $200 over the national average, according to 2016 figures.

With this in mind, people who know that they have to log a lot of miles behind the wheel likely aren’t the best candidates for this kind of insurance. On the other hand, if you live in an urban area or have circumstances that don’t require you to use your car often, pay-per-mile insurance could be an excellent way to save money on monthly auto insurance premiums.

If you don’t drive often or fall under one of these categories you may want to look further into low mileage insurance:

  • College student – You’re likely walking or biking around campus. And if you drive your car, you’re not going far very often. Why pay extra when you’re burning more calories than miles? 
  • NYC resident – If you live in NYC or another metro area you likely have everything within a few steps or subway stops. Your car likely stays parked unless you’re commuting to work or taking a road trip out of the city. 
  • Remote employees – Those working from home spend most of their days in their humble abode. Work is only a hop or skip from couch to their computer screen. There’s no need for keys unless you’re needing to run a few errands. 
  • Retired adults – If you’re retired or living in assisted living, chances are everything you need is at your fingertips. Grocery stores, pharmacies and leisure activities are within a few miles. So, there’s no need to pay full price for a few stops in the neighborhood. 

If I am working from home, should I switch to low mileage insurance? 

The COVID-19 pandemic has forced many employees to work from home for safety and social distancing precautions. With many spending more time at home, it’s the perfect time to switch to low mileage insurance. A recent Slack study found that nearly 16 million U.S. workers as of March 27, 2020. Slack noted that the number is probably much higher now as the pandemic continues. 

Slack’s study mentioned that 66 percent of their surveyed employees are working remotely due to COVID-19 concerns, while 27 percent were remote workers beforehand. Growing pandemic concerns have many working remotely indefinitely and relying on delivery services to avoid large crowds. Americans are spending more time at home and less time out and about, making now the perfect time to switch to low mileage auto insurance. Those savings can help with home expenses or be put away for a rainy day. 

[Read more: The auto Insurance Terms You Need to Know]

How much can you save with pay-per-mile insurance?

The main factor in determining how much you can save with car insurance by the mile is the number of miles you plan on logging. In revisiting the Metromile example, if you are able to stick to an average of 25 miles per day, you’d end up paying just under $900 per year in auto insurance, which would yield you a modest chunk of change in savings compared to the national average.

To have a clearer idea of what you could save, however, your best bet is to solicit quotes from traditional auto insurance providers and pay-per-mile insurers and use your estimated annual mileage as a predictive marker in calculating how much each option might cost you.

How you can save money with low mileage insurance

Usage-based insurance coverage lets you pay as you drive. It’s simple—you only owe for the miles you drive. The coverage cost may vary depending on a number of factors including your city, vehicle and number of miles. You’ll also want to factor in other auto insurance coverage add-ons such as uninsured drivers, collision or Roadside Assistance.

Overall, it can mean big savings including low mileage premium reduction— the monthly or annual coverage price drop for having low mileage insurance. If you drive less than 8,000-10,000 miles per year you can benefit from low mileage insurance coverage savings. The Insurance Information Institute article also shared that you can also get a price reduction if you carpool to work for extra savings.

If you’re looking for usage-based insurance companies start with a few popular auto insurance options. Take a look at low mileage coverage programs at Allstate, Liberty Mutual, Progressive or State Farm to start. 

Frequently asked questions

Pay-as-you-drive models use a telematics device to monitor your car. By using this technology, drivers have the chance to potentially earn a larger discount by driving less and being more cautious on the road. The point of these devices is to track a driver’s driving patterns as a means of gauging of cautiously or recklessly a user drives. The devices track speed, hard braking and a few other factors to determine how much a driver is eligible to save for safe driving.

Pay-per-mile insurance is only calculated using a base rate and a per-mile rate. Thus, how recklessly or safely you drive have no bearing on what you pay at the end of each billing cycle.

Though all users have the right to cancel their pay-per-mile insurance policies whenever they like, doing so often comes with fees. Esurance, for example, charges policyholders a $50 cancellation fee if they terminate their policies early. This fee can be waived if the policyholder switches to a traditional, unlimited miles policy. To find out whether your provider will charge you to cancel your policy, reach out to a representative.

Yes. The coverage offered with a pay-per-mile policy is the same as that provided under a traditional policy with the exception that the payment structure is different. While a traditional policy will charge you a monthly premium based on factors such as the make and model of your vehicle, your age, your driving history and health-related factors that could impact your ability to drive safely, a pay-per-mile policy charges drivers a substantially reduced base fee along with a per-mile fee that is usually capped at a certain per-day mileage limit.

Pay-per-mile premium rates are made up of two components. The first is a base rate, which is applied at the discretion of the provider. The second component is a rate applied to the number of miles you drive during a billing cycle. This rate is determined based on factors such as your age, driving history, credit score, make and model of car and gender, among other factors. Combined, these two factors make up your monthly premium.



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