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How does pay-per-mile auto insurance work?

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How does pay-per-mile auto insurance work?

If you only drive occasionally, you may think that standard car insurance is a waste of money. In most cases, it’s not because car insurance is required in every state in the U.S. except New Hampshire.

However, if you are a low-mileage driver, it may be worth considering pay-per-mile auto insurance as an alternative to traditional insurance that can reduce the cost of your auto coverage.

Here, we’ll explain how pay-per-mile compensation works, the pros and cons you should be aware of, and whether it’s worth switching.

About pay-per-mile insurance

Pay-per-mile car insurance works differently than traditional car insurance. Instead of paying a set fee based on your location, vehicle, driving history, or other factors, you pay a base rate and a per-mile rate. The base monthly price is determined by demographic information and driving history and remains the same. However, your per mile rate may vary depending on the number of miles you drive each month.

If you’re a low-mileage driver who works from home, commutes short distances, or frequently takes public transportation, you may save money by choosing pay-per-mile coverage. It can also be an attractive option for college students and retirees. However, to save money on auto insurance, you should generally drive fewer than 10,000 to 12,000 miles a year.

Pay-per-mile coverage options vary by insurance company, but many companies offer both types of coverage. Popular pay-per-mile options include the following airlines:

  • metro mile
  • mile auto
  • Smart Miles nationwide
  • allstate milewise

Benefits of pay-per-mile insurance

  • Cost reduction: The biggest benefit of pay-per-mile insurance programs is the potential savings compared to traditional auto insurance. Drivers with low mileage can potentially save significantly on their insurance premiums.
  • flexible coverage: With standard insurance, you pay the same car insurance rate each month or year. However, pay-per-mile coverage is more flexible, and your rates can be significantly lower if you drive less in a given month.
  • Possibility of discounts: Some auto insurance companies offer discounts to people who purchase pay-per-mile insurance. For example, if you always follow the rules of the road, you may be eligible for a safe driving discount.

Disadvantages of pay-per-mile insurance

  • limited availability: Pay-per-mile auto coverage is not available in all states, and availability may vary by insurance company. Similarly, your car may not be compatible with telematics devices that many insurance companies require for pay-per-mile coverage.
  • Not suitable for drivers with high mileage: If you drive more than 10,000 to 12,000 miles each year, pay-per-mile auto insurance can be more expensive than standard auto insurance.
  • privacy issues: Pay-per-mile insurance companies typically require you to add a telematics device to your car to track your mileage and driving habits, including speed, mileage, time of day, driving events, and even location. . Not everyone wants their auto insurance company to track them so closely.
  • Coverage limitations: Some insurance companies may have long-distance drive exceptions for pay-per-mile insurance, but this isn’t always the case. If you take occasional road trips, read the fine print before accepting pay-per-mile coverage.

How pay-per-mile auto insurance works

If you choose pay-per-mile insurance, you typically need to install and use a telematics device in your car to track your mileage and driving behavior. These small devices are often connected to his OBD-II port under the steering wheel of the car. However, some insurance companies may allow you to take a monthly photo of your odometer or download a mobile app for tracking instead.

Once you have your tracking up and running, you can drive as normal and your insurance company will charge you a fixed base rate and a variable rate based on your usage each month. So let’s say you paid a base rate of $35 and a rate of $0.06 per mile in a given month. If you drive 135 miles during the month, your insurance premium will be:

$35 + ($0.06 x 135) = $43.10

Keep in mind that depending on your auto insurance company, your mileage rate may increase if you drive a lot in a month. Be sure to understand the pricing structure before exchanging your standard insurance policy for a pay-per-mile program.

Is pay-per-mile insurance worth it?

Pay-per-mile insurance can be valuable for some drivers to save on car insurance premiums. However, there are some important points to consider. If you’re considering switching to pay-per-mile coverage, find out if this coverage is available in your area and which insurance companies offer it.

You can also assess your overall driving habits and track your mileage to determine if paying per mile makes more sense than standard car insurance. Consider whether the amount you drive changes from month to month. If you think it makes sense, evaluate your potential cost savings by reviewing your current insurance policy and getting auto insurance quotes from various insurance companies.

Finally, you should consider which coverage options you need. For example, do you have an older, high-mileage car? If so, a liability-only policy may make sense. If your car is new, a full coverage policy that includes liability, comprehensive, and collision insurance may provide the protection you need.

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