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What Is Pay-Per-Mile Auto Insurance?

Who wants to pay full price for something they don't use? When it comes to auto insurance, your monthly payment can stay the same even if you stop driving your car. The exception is pay-per-mile insurance, which adjusts your monthly payment depending on how much you drive, saving you money when you're not driving as often.

If you don't drive much, or think you'll be using your car less in the future, switching to a pay-per-mile auto insurance plan could save you some money. Read on to learn how these plans work and how much you could save.

How Does Pay-Per-Mile Insurance Work?

With a typical auto insurance policy, you'll pay a premium in exchange for coverage in case your car is damaged or stolen. This premium is usually paid off monthly in six- to 12-month agreements, and doesn't change from month to month—no matter how often or how far you drive your car.

Pay-per-mile insurance, on the other hand, provides the same level of coverage as conventional auto insurance, but adjusts your monthly payment based on how much you actually drive. The payment will be made up of a base payment and a per-mile assessment, all of which will be determined when signing up for your plan. Here's more on each of those costs:

  • Base rate (or daily rate): Depending on your policy, your base rate will be charged once a month, or once for each day you use your vehicle. Your base rate is calculated like a normal insurance rate, and takes into account your age, driving history and other relevant information. This fee should make up the bulk of your monthly payment, as long as you're not driving too many miles.
  • Per-mile rate: In addition to your base rate, you will be charged for each mile you drive each month. This per-mile rate can vary, but is typically only a few cents. It works like this: Imagine you drive 200 miles per month. If your per-mile rate is 4 cents, that means in addition to your base rate, you'll pay $8 for the miles you drove in that month.

If you have a pay-per-mile policy, your insurance company will install a device in your car to measure your mileage each month. This mileage count will then be used to calculate your monthly payment.

Who Can Use Pay-Per-Mile Insurance?

If you're considering pay-per-mile insurance, find out which, if any, providers offer it in your state. Insurance companies must seek approval from state departments of insurance before providing these policies.

Though not all companies offer pay-per-mile policies, here are several of the main providers that do and the states where coverage is available:

  • Allstate Milewise: Arizona, Delaware, Idaho, Illinois, Indiana, Massachusetts, Maryland, New Jersey, Ohio, Oregon, Texas, Virginia, Washington and West Virginia
  • Nationwide SmartMiles: Arizona, Colorado, Connecticut, District of Columbia, Iowa, Idaho, Illinois, Indiana, Maine, Maryland, New Hampshire, Nevada, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah, Vermont, Virginia, Washington and Wyoming
  • Metromile: Arizona, California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia and Washington
  • Mile Auto: Georgia, Illinois and Oregon

If pay-per-mile policies are offered in your state, generally there are no limitations to who can have one. Remember that the base rate and per-mile rate you'll be charged can be determined by your age, driving history and other relevant factors. So that means if you would typically be charged a high premium for traditional insurance, your pay-per-mile rates will probably also be higher.

Should I Consider Pay-Per-Mile Insurance?

While pay-per-mile insurance can be great for someone who rarely drives, you'll want to make sure it aligns with your future driving plans before you lock yourself into a policy. If something changes and you end up driving more than you are now, you may end up spending more per mile than you would have with a traditional insurance premium.

When comparing the pay-per-mile option to a traditional insurance plan, make sure you first get a quote that considers your unique driving profile instead of using generic examples provided by insurers. Once you get a quote for a base rate and a per-mile rate, estimate how many miles you drive and multiply that by your per-mile rate. If the cost for per-mile insurance is the same or more than a traditional insurance premium, you may be better off with the regular plan.

Remember that some auto insurers (in states that allow it) will use your credit score to determine your insurance rates, so making sure your credit is in check before applying might help you snag a better rate. If you're not already keeping an eye on your credit, consider getting free credit monitoring from Experian—which includes your free Experian-powered FICO® Score and credit report—to see what insurers will consider when evaluating your application.

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