Pay Per Mile Car Insurance: Everything You Need to Know

If you have a car that sits in the garage most of the time, whether because you are retired, work from home, or simply don't drive much, you may be wondering if there is a less expensive alternative to traditional car insurance coverage.

The good news is that you can reduce your auto insurance premiums. If you don't drive frequently, pay-per-mile car insurance could help you save money on your monthly premium — up to 40% depending on who you choose. There are numerous low-cost insurance providers that provide excellent coverage and rates.

Want to know why pay per mile insurance is such a smart and cost-effective option? Stay with us as we explain how it works, who it is for, and how much money it can save you each month.

What Is a Pay-Per-Mile Car Insurance Policy?

Pay-per-mile car insurance is a policy that allows you to pay for coverage based on the number of miles you drive. To put it another way, the less you drive, the less you pay. This is because insurance rates are determined by risk, or the likelihood that you will file a claim for which the company must pay. And, of course, the less time you spend on the road, the less likely you are to be involved in an accident. As a result, pay-per-mile insurance is best suited for people who don't drive frequently, such as:

  • Retirees
  • Individuals who work from home
  • City dwellers who walk or take public transportation frequently
  • College students
  • People with short daily commutes
  • Those who own a second vehicle but rarely use it

There is no specific number of miles you must drive—or not drive—in order to benefit from pay-per-mile car insurance. However, it is useful to know that the average American drives approximately 13,500 miles per year—and that if you drive less than 10,000 miles per year, you are most likely overpaying for auto insurance. The drivers who save the most money with pay-per-mile insurance drive less than 8,000 miles per year on average. A wise driver is always on the lookout for possible auto insurance discounts.

How Pay-Per-Mile Car Insurance Works

Pay-per-mile car insurance is a type of policy that provides comprehensive and collision coverage. It's also known as low-mileage insurance, but the two are not the same thing. This is how. While pay-per-mile coverage charges you by the mile, low-mileage car insurance bases your rate on how far you drive. Instead of a percentage off your standard policy, it is a deduction given at the end of the policy year to drivers who log fewer than a certain number of miles.

Pay per mile insurance, on the other hand, charges you a certain amount for every mile you drive in a month on top of a base rate. For example, if you only drive five or six thousand miles per year, which is less than half of the national average, you could save hundreds of dollars on your insurance.

A base rate is used to calculate pay-per-mile insurance. This base rate will be determined by your insurer based on factors such as your age, where you live, and the type of vehicle you drive, as well as your driving history and credit history. Following that, you will be given a per-mile rate. This rate will vary depending on your provider, but charges are typically capped at 250 miles per day. And now for the good news. Despite the fact that your rate is calculated differently than it is with traditional insurance, you will still receive the same coverage as a traditional policy—without being limited to limited coverage or minimal liability insurance.

Once you've determined your base rate and per-mile rate, you'll only be charged for the miles you drive. Insurers track how far you drive using "telematics," which is done in one of two ways. You can use a device that plugs into the dashboard, or you can send a photo of your odometer using a photo app. Finally, you will receive a monthly bill based on the number of miles you have logged.

How Much Does Pay-Per-Mile Insurance Cost?

The cost of pay-per-mile insurance is determined by several factors, including how much you drive and which provider you choose, as well as your own driving and claims history. You may be able to save a significant amount of money—up to 40% or more, according to some providers—but this usually applies only to people who drive less than 8,000 miles per year.

Remember that your pay-per-mile car insurance bill is divided into two parts. The low monthly base rate comes first, followed by the per mile cost, which averages five or six cents per mile. Based on those factors, there's a handy formula you can use to get a more accurate picture of how much you stand to save:

Base monthly rate + (Per-mile rate x Approximate number of miles you drive per month).

Assume your pay-per-mile quote includes a monthly base rate of $40 and a per-mile rate of 6 cents. You average 700 miles per month. You can compute your monthly rate as follows:

$34 + (.05  x 800) = ($34 + $40) = $82.

Remember that this is only an estimate, and your monthly payment will vary depending on how many miles you drive. Do you know how many miles you drive? To get a better idea of your car insurance rates, start tracking your mileage before attempting a pay-per-mile plan.