What kind of car insurance should you buy? If you’re someone who doesn’t do a lot of driving, you might wonder why (or if) you need to pay as much as someone who’s on the road all the time. That’s a reasonable question – and one that deserves a thoughtful response.
Addition Financial members who are concerned about budgeting sometimes ask us about pay per mile car insurance. We put our heads together with some experts to create this list of six pros and cons of pay per mile car insurance to consider before you buy.
What is Pay Per Mile Car Insurance?
Let’s start with the basics. Pay per mile car insurance is insurance that charges a fee for every mile you drive. It is ideally suited for people who don’t drive very much and often has a cap on mileage.
The pay per mile insurance company usually starts with a base rate that takes multiple factors into account, including your age, gender and the make and model of your vehicle. You will also receive a rate per mile. This rate is typically capped, with many policies capped at 250 miles per day.
The amount you pay per mile rate is based on the miles you drive. Some auto insurers provide drivers with a device that plugs into their odometer. In the old days, drivers sometimes had to take photographs of their odometers at regular intervals to send to the carrier.
The companies that track driving may also penalize policy holders for risky driving behavior, such as quick accelerations or hard braking. You will need to make sure to read your car insurance policy fine print to understand what your obligations and risks are.
What are the Pros of Pay Per Mile Car Insurance?
There are some serious advantages to choosing pay per mile car insurance. Here are some of the biggest pros as we see them.
#1: Save Money
If you’re someone who drives fewer miles, then you might not need to pay the same amount for car insurance as someone who drives every day. While pay per mile insurance isn’t free, it is significantly less expensive than the amount you might pay if you drive long distances on a regular basis.
Brad Cummins, the Owner of Insurance Geek, told us:
“Pay by mile insurance is only appropriate for those who travel less than 100 miles a week or 6,000 miles a year. However, if you work from home and only use your car for grocery shopping or weekend trips, this could be an excellent way to save on insurance premium costs.”
If your mileage is in line with these suggestions, then pay per mile insurance might be right for you.
#2: Beneficial for Young or City-Dwelling Drivers
If you live in a city, then you know that where you live can have a big impact on what you pay for car insurance. As a rule, city dwellers pay more thanks to high population density and the increased risk of accident or injury that comes with it.
Jaime Arias is a licensed insurance agent at Dynamic Insurance Solutions. He told us that pay per mile insurance can help people in high-cost areas save on auto insurance rates.
“Pay per mile car insurance can be a good option for those that do not frequently drive and who would otherwise pay high premiums under standard car insurance policies. It works out best for young drivers in major cities.”
City dwellers sometimes do a lot of walking or use public transportation instead of driving, both of which keep their mileage low. If that’s something that applies to you, then pay per mile insurance is an option.
What are the Cons of Pay Per Mile Insurance?
Now let’s look at some of the cons of pay per mile insurance. While it can help some drivers save money, it isn’t without its risks.
#1: Not Available in Every State
The first con of pay per mile insurance is that it isn’t available everywhere. While the concept was first introduced back in 1968, it has only recently become popular thanks to new technology that provides a hassle-free experience for drivers.
The good news for Addition Financial members is that you can buy pay per mile car insurance in Florida.
#2: Not Available for Older Models
The next con is that if you drive an older car, you may not qualify for pay per mile insurance. That’s because most carriers require drivers to attach a device to the odometer that tracks miles and reports them to the insurer. The devices cannot be attached to some older cars.
There may be some carriers who can accommodate you, but you’ll need to ask around and make sure there’s a practical way for you to report your mileage.
#3: May Cost You More if You’re Not a Safe Driver
While pay per mile insurance can cost less than standard insurance, it may not if you’re not a safe driver. Laura Adams, MBA, is an Auto Insurance Expert at AutoInsurance.org. She said:
“If you're not a safe driver by the program's standards, you won't save money.”
As we mentioned above, if you engage in risky driving behavior, your carrier may have the right to increase your insurance rate versus someone with great driving habits. That’s because the risk of you being in an accident is higher due to your behavior.
#4: May Cost More Than Standard Insurance if You Drive a Lot
The final downside of pay per mile insurance is that you won’t have the flexibility to increase the number of miles you drive without paying extra for it. Melanie Musson is a Car Insurance Expert at CarInsuranceComparison.com. She pointed out the following:
"If you want to drive more miles, you may end up paying higher rates than you would have with a standard policy. If you rarely drive or only drive short distances, it’s worth comparing pay-per-mile insurance options."
If you opt for a pay per mile policy and your circumstances change, then you may need to look into traditional insurance instead.
Should You Consider Pay Per Mile Insurance?
When should you consider pay per mile car insurance? It is certainly not for everybody, but there are some circumstances when it makes sense.
You Drive Infrequently and Not for Long Distances
Let’s start with the number of miles you typically drive. If you’re one of those low mileage drivers that are on the road less than 100 miles per week, or less than 6,000 miles per year, the pay per mile insurance is an option for you.
According to the US Department of Transportation’s Federal Highway Administration, the average American has an annual mileage of 13,500 miles. That means you would need to drive less than half that distance to make pay per mile insurance worthwhile.
Your Demographics Are Driving Up Your Rates
If you’re someone who is young or who lives in a major city – or both – then you may save quite a bit of money with pay per mile insurance. Young drivers who don’t have a long driving history usually pay more for car insurance than older drivers. As we noted above, the place you live may impact your rates as well, with drivers who live in cities paying more than those in less populated areas.
If your age or address are having a big impact on your rates, and you don’t drive frequently, then you may pay significantly less with pay per mile insurance than you would with standard insurance. On the other hand, older drivers and those who live in low-cost areas may be better off with standard insurance.
You Work from Home
While working from home used to be rare, the COVID-19 pandemic has made remote work into a widespread phenomenon. Even with vaccines now readily available, many employers have realized they can reduce overhead by allowing employees to work remotely making for fewer accidents on the road.
If you’re someone who works from home and therefore doesn’t have a daily commute with little driving involved, then pay per mile insurance may be ideal for you. With less time on the road, you also have less risk – and there’s no need for you to pay a high premium to subsidize people who drive more frequently than you do.
What Companies Offer Pay Per Mile Insurance in Florida?
Not every carrier offers pay per mile insurance, but there are several that do. In Florida, you can buy pay per mile insurance from the following companies:
- AllState MileWise
- Nationwide SmartMiles
If you think that pay per mile insurance might be right for you, then we suggest getting quotes from both carriers and comparing them. Make sure to take your average mileage into consideration as well as your driving habits and location.
People who drive rarely and only for short distances may benefit from purchasing low mileage car insurance, which typically costs less than standard insurance coverage. The guidelines and advice we’ve included here should help you evaluate your insurance needs and decide whether pay per mile insurance or using traditional car insurance is right for you.
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Posted on Dec 28, 2021
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