Pay-per-mile insurance: does it pay at your mileage?

How a per-mile bill is built

A regular policy prices your mileage once, from the estimate you give when you buy it. A pay-per-mile policy prices it every month. The NAIC describes this kind of usage-based insurance as turning the fixed cost tied to mileage into a variable one. The bill has parts you need to see together to compare it with what you pay now.

• The base rate is a fixed monthly amount you pay even if the car never moves. It is set from the same things as a regular premium: your driving record, the car, where it is kept and the coverage you choose.
• The per-mile rate is a few cents for every mile driven that month. It is also set per driver and per car, so an advertised rate is only an example.
• A daily cap on billed miles: after a set number of miles in one day, further miles that day aren't charged. WalletHub, a comparison site, reports that Allstate's Milewise caps charged miles at 250 a day in most states and 150 in Oregon, Illinois, Indiana, Ohio and New Jersey. Ask for your program's cap in writing, because it decides what a road trip costs.

The coverage itself works like any other policy. Liability, collision and comprehensive pay claims the same way, and your state's minimum liability limits still apply. Only the way the premium is counted changes.

A worked example

Say your current policy costs $150 a month. A per-mile quote offers a $45 base rate and 6 cents a mile, and you drive about 800 miles a month. The per-mile bill is $45 + 800 × $0.06 = $93. That is $57 a month less, or $684 over a year.

The break-even is where the two bills match: ($150 − $45) ÷ $0.06 = 1,750 miles a month. Below it, the per-mile plan is cheaper; above it, it costs more. A month with a long trip can push you past the line even if your average stays under it, unless a daily cap cuts the bill. Enter your own quote and mileage in the pay-per-mile calculator.

Who it tends to suit

Per-mile pricing rewards cars that sit. Regular pricing already reflects use to a degree: the Texas Department of Insurance notes that rates are higher if you drive to and from work or use the car for business. Drivers who work from home, live close to work or school, rely on transit most days, or keep a second car for weekends are the usual candidates. A household with one car that does all the driving is less likely to gain.

• It can work when your monthly miles sit well under the break-even and don't swing much from month to month.
• It is a weaker fit for long commutes, a job with frequent long drives, or a car shared by several drivers whose mileage you can't predict.
• Seasonal driving needs care: a light winter and a heavy summer can average out to more than you expect.

A per-mile policy is not the only way low mileage shows up in a price. Many standard policies already price annual mileage, and some insurers give a low-mileage discount; see how annual mileage affects a premium. Ask for both kinds of quote before you switch.

Tracking, privacy and availability

To bill by the mile, the insurer has to count the miles. The NAIC lists three ways telematics data is gathered: a plug-in device you install yourself, equipment the car maker built in, or a mobile app. These tools can record more than mileage; the NAIC lists time of day, where the car is driven, hard braking and rapid acceleration among the data devices measure. Some per-mile programs use it: WalletHub reports that in ten states, including Arizona, Florida, Pennsylvania and Texas, Milewise rates are also affected by driving behavior such as speeding and sudden braking. Ask what is collected, whether it can change your price beyond the miles, how long it is kept and who it is shared with. Our guide to telematics and usage-based insurance covers the programs that price driving behavior.

Per-mile policies are sold by a limited number of insurers, and not everywhere. WalletHub lists Milewise in 21 states, for example. If no company offers one where you live, a standard policy with an accurate mileage estimate is the next thing to check, and a low-mileage discount may close part of the gap.

How to decide

1. 1 Measure your miles over at least a month, and note any long trips you take each year.
2. 2 Get a per-mile quote and a regular quote with the same liability limits and deductibles.
3. 3 Find the break-even with the calculator and compare it with your real monthly miles.
4. 4 Ask about the daily cap, the device and the data before you sign up.
5. 5 Switch without a gap. Start the new policy before you cancel the old one; see switching insurers without a gap.

Questions drivers ask