Auto Insurance

What is Pay Per Mile Car Insurance?

Pay-per-mile car insurance can be a money-saving insurance option for infrequent drivers. Learn how pay-per-mile compares to standard car insurance coverage, how it works, and what it might cost. 

What is Pay Per Mile Car Insurance

If you’re a low-mileage driver, you may be able to save money on your car insurance by utilizing pay-per-mile insurance. Pay-per-mile insurance rewards drivers who drive fewer miles by providing a measure of control over the bill. As opposed to standard insurance, the less you drive, the more you can save each month with PPM.

How Does Pay-per-Mile Car Insurance Work?

Pay-per-mile insurance is precisely like its name implies: you pay a little money for every mile you drive. This fee is often a few cents per mile, making coverage affordable for infrequent drivers while still providing the same coverage as standard insurance. The idea behind pay-per-mile insurance is that the less you drive, the less likely you are to be in an accident or file a claim. Since staying off the road reduces some of your risks and the insurance company’s potential claims payouts, insurers can offer the same coverage at lower rates for infrequent drivers. 

On average, Americans drive about 13,500 miles annually. You can determine if PPM insurance is right for you by tracking your monthly or annual mileage; if you find that you tend to drive well below the average 13,500 per year, you may find cost savings through a pay-per-mile car insurance policy.

However, be sure to compare different PPM rates to see what you might pay for the amount you drive. Many companies charge a flat monthly fee in addition to a per-mile rate for PPM insurance, such as $30 per month plus $0.04 per mile driven. Ensure that your mileage will result in significantly lower insurance rates when compared to standard auto insurance before deciding if PPM is the best choice for you.

If you choose to use pay-per-mile insurance, you may be asked to install a plug-in device in your car. This device reports on your mileage as you drive. Other companies may use satellite tracking or even request pictures of your odometer. While plug-in devices may seem more invasive, many companies charge a lower monthly fee when you install one as it ensures greater and more immediate accuracy.

Usage-based vs. Pay-per-Mile Car Insurance

Usage-based insurance is often compared with pay-per-mile insurance. However, there are a few key differences. Primarily, usage-based insurance prioritizes safe driving. UBI companies track not only the miles driven but also your driving habits, such as how fast you drive or how hard you brake.

Rather than offering potentially lower rates in general, like with pay-per-mile insurance, UBI provides discounts for safe driving behaviors and low mileage. However, penalties can also be applied for dangerous driving behaviors.

Non-owner vs. Pay-per-Mile Car Insurance

Non-owner car insurance is made for drivers who don’t own a car and functions like regular liability insurance. It covers damages and any injuries to other cars and drivers. This type of coverage may include people who don’t drive often; however, it doesn’t necessarily benefit low-mileage drivers. Some non-owners may still drive frequently, such as driving rental cars or borrowed vehicles. In this case, non-owner coverage may not have significant savings.

What Does Pay-per-Mile Insurance Cover?

Pay-per-mile insurance offers all the standard coverages of a regular insurance policy, such as liability coverage with optional collision coverage. This type of insurance can help pay for property damage, car repairs, car theft, and protection from under-insured motorists in the event of a collision.

Keep in mind that if you own a car, auto insurance is a crucial expense, even if your state does not require it. As the driver, you’re liable for any potential damages you may cause. By holding all drivers accountable for insurance coverage, drivers and their property are protected in emergencies. For your state’s minimum insurance requirements, check with your state’s Department of Motor Vehicles.

Who Should Consider Pay-per-Mile Car Insurance?

Infrequent drivers who may benefit from pay-per-mile coverage include:

  • Individuals who work from home
  • Those who frequent public transportation
  • Weekend drivers
  • Retirees
  • Those who only drive on special occasions, such as to pick someone up from the airport

Even if you drive infrequently, insurance coverage is often mandatory. Pay-per-mile insurance can satisfy your state’s minimum requirements, and you only pay for what you actually drive. If you’re unsure if you are a low mileage driver, start tracking your mileage. If you drive under 1,000 miles a month, chances are you may save with pay-per-mile insurance.

How Much Does Pay per Mile Cost?

Car insurance premiums are what you pay each month for your coverage. With a standard policy, your rate is calculated based on factors such as your age, credit score, the car you drive, and driving history. If you’re a student, your grades may also contribute to the premium, namely that good grades could result in a student discount. These factors matter because they contribute to your overall risk profile. If your insurance company sees you as a higher risk statistically, your premium may be higher. The average insurance expenditure on a standard insurance policy is $1,070 annually. 

Pay-per-mile insurance drops many of these risk factors when calculating your premium. Instead, the cost is a base rate charged either daily or monthly. Then, you pay a few pennies for every mile you drive. For example, a policy could be $30 a month and $0.05 per mile. At 12,000 miles per year, you might pay $960. At 6,000 miles, you might pay $660.

Things to Consider With Pay-per-Mile Car Insurance

Since pay-per-mile is designed to benefit infrequent drivers, there can be drawbacks to misusing a policy. Some companies have an annual mileage limit, which may invalidate your coverage when exceeded. This limit is typically based on a mileage estimate you provide to your company. If you significantly underestimate how much you drive, you may find your company unwilling to continue your policy.

If you’re unsure whether you’re truly an infrequent driver or teeter on the edge of 12,000 miles annually, consider your options carefully. Calculating your potential savings can help you make a more informed decision, but it’s important to be honest about your driving habits with yourself and the insurer. If you’re confident that you’re an infrequent driver — for example, if you drive under 10,000 miles per year — you may feel confident in your choice of coverage.

Usage-based insurance is another option that may help to lower your premium. Infrequent, safe drivers may save significantly on insurance premiums with this type of policy. However, you must agree to have your driving habits tracked. This can save you money, but might also lead to penalties if the insurer doesn’t consider you a safe driver. Being clear and honest about your driving habits will help you choose the coverage that’s right for you.