Pros and Cons of Pay-Per-Mile Insurance

Quick Answer

The pros of pay-per-mile auto insurance include potentially lower costs and the general availability of full coverage, while the cons include the possibility that this coverage isn’t sold in your state or by your favorite insurer.

Two sisters driving a car and enjoying a summer road trip.

Pay-per-mile auto insurance allows you to pay for coverage based on how many miles you drive. But is it right for you? If you're considering pay-per-mile insurance, keep the following pros and cons in mind.

What Is Pay-Per-Mile Insurance?

Pay-per-mile auto insurance is a type of policy that bases your coverage costs primarily on the number of miles you drive. The number of miles you drive is multiplied by the per-mile rate, and that amount is coupled with the base rate.

Here's how the base rate and per-mile rate work:

  • The base rate, which usually stays the same during a policy period, is typically charged once per month. This rate generally makes up most of your monthly insurance bill, unless you're putting a lot of miles on your car. As with a normal insurance rate, the base rate is based on factors such as your age and driving history.
  • On top of the base rate, a pay-per-mile customer is charged a per-mile rate. This amount will be multiplied by the number of miles you drive per month, then added to your base rate, to get your total monthly payment.

The price of pay-per-mile insurance may differ from one insurer to another. In addition, it goes up or down based on the number of miles you drive each month.

Mileage isn't the only thing that determines how much you pay for pay-per-mile insurance, though. An insurer also will take into account factors such as your age, gender and driving record.

Keep in mind that some insurers offer low-mileage discounts, which aren't the same as pay-per-mile coverage.

Pros of Pay-Per-Mile Insurance

Here are some of the pros of pay-per-mile insurance.

Lower Costs

If you don't put that many miles on your car, you may save money on insurance. For instance, if you work from home, you might be able to trim your insurance bill because you're not commuting to and from work in your car. Pay-per-mile insurance also might benefit low-mile motorists such as retirees, students who live near campus, workers with short commutes and people who often use public transportation or rideshare services.

Mile Auto, one provider of pay-per-mile insurance, claims a motorist who signs up for this coverage can save 30% to 40% compared with the rates they pay for traditional insurance. The company says pay-per-mile coverage makes the most sense for a driver who logs up to 10,000 miles a year.

Full Coverage

Pay-per-mile insurance generally provides the same types of coverage as those available with a traditional policy. For example, Mile Auto sells liability coverage, comprehensive and collision coverage, rental car reimbursement coverage and roadside assistance.

Mileage Caps

Some providers of pay-per-mile insurance cap the number of miles you can drive each day. So, if you surpass the cap of, say, 250 miles in a single day, you might need to pay only for the first 250 miles. But if you repeatedly reach or exceed the cap, you might wind up paying more for coverage than someone with traditional coverage days.

Cons of Pay-Per-Mile Insurance

Here are some of the cons of pay-per-mile insurance.

Limited Availability

Some insurers might not sell pay-per-mile coverage in every state. For instance, Nationwide's SmartMiles pay-per-mile coverage isn't available to motorists in Alaska, Hawaii, Louisiana, North Carolina, New York and Oklahoma.

Furthermore, not all auto insurers offer pay-per-mile insurance. Among them is Progressive, one of the biggest auto insurance companies in the U.S.

Another limitation is pay-per-mile coverage might not be available if you drive an older car. Nationwide, for example, limits this coverage to most vehicles manufactured after 1996.

Upfront Payment

An insurer might require a buyer of pay-per-mile insurance to preload money in their account, with the insurer then subtracting funds from the account according to how many miles are logged along with the base rate. This could require you to pay out more money in one go than you would paying your regular auto insurance premiums.

Privacy Concerns

If you value your privacy, you might not want to opt for pay-per-mile insurance. That's because a device typically placed under your dashboard might count the number of miles you put on your odometer. This electronic device sends mileage data to your insurance company. A mobile app might serve the same purpose. Your insurer may also be able to grab mileage data through a wireless connection.

Much less of a privacy concern is another method of tracking your mileage: Regularly submitting a photo of your odometer reading to your insurance company.

Heading Down the Pay-Per-Mile Road

If you're looking into pay-per-mile auto insurance, be sure to weigh the pros and cons. While you might be able to save a bundle of money on your coverage, pay-per-mile insurance might not be available where you live or might not be sold by your favorite insurer. When you're ready to shop for car insurance, try Experian's free auto insurance quote comparison tool, which provides quotes from over 40 top insurers.