How Pay-Per-Mile Auto Insurance Works

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If the pandemic has changed where you work, you may be able to save money on your auto insurance. If your commute has ended or only lasts a few days a week, or if you’ve always worked from home, you may be eligible for pay-per-kilometer auto insurance.

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Related: Compare auto insurance rates with EverQuote

What is Pay-Per-Mile auto insurance?

Traditional auto insurance does not track your mileage and assumes a general level of regular driving. Pay-per-kilometer auto insurance or pay-as-you-go coverage determines your premium based on how far you drive.

“Pay-per-kilometer auto insurance is fair for drivers because it uses actual driving observations to decide how much an insured is paying for their auto insurance premium,” said Rick Chen, a spokesperson for the company. paid insurance per kilometer Metromile.

Paid-by-the-mile auto insurance includes all of the same types of coverage you get from a traditional auto policy: Third Party Liability, Comprehension and Collision, Uninsured Motorist, and Roadside Assistance. But you pay for the kilometers you actually drive.

With a traditional auto insurance policy, the insurance company must consider the risks and miles associated with all drivers. So even if you are a low mileage driver, the cost of your insurance will largely reflect other drivers’ claims for repair costs and medical bills. If these expenses increase, the rate you pay will also increase. It’s like those bad elementary school teachers who made everyone miss recess because a few people were talking. What a desappointment.

Although some insurance companies offer discounts for low mileage, it’s important not to confuse this with pay-per-kilometer coverage. With low mileage discounts, insurers will generally only apply a discount if your mileage falls below a specific limit such as 7,500 miles per year.

How Does Pay-Per-Mile Auto Insurance Work?

The rate you pay with a pay-per-mile policy has two components: a base rate and a per-mile rate.

The base rate can be charged daily or monthly and is determined by your personal information (such as age, location, and credit) and driving history, just as you would see with a traditional auto policy. The rate per mile is generally a few cents per mile.

“You can think of the base rate as the cost of insuring your car when it’s parked and the rate per mile as the cost for the distance you actually travel,” says Chen of Metromile. “When an auto insurance company calculates premiums, they look at the risk of an accident, which is higher if you’re on the road frequently than if your car is parked in the garage.

To accurately measure your time on the road, paid insurance companies will provide a device that plugs into your vehicle’s OBD-II port, which is usually located near the steering wheel. This is the port that auto mechanics use to diagnose any issues with your car.

It is important to note that if you own a hybrid or diesel vehicle, or if your car is older than 1996, the tracking device may not be compatible with your vehicle.

With Metromile, Chen says your device can track your location with its smart driving features. So if you get stuck on the side of the road, they already have location data to make it easier to file a claim. Additionally, if you are parked in a large city, Metromile will send you notifications to help you avoid parking tickets.

If you are a very good driver, another option is usage-based auto insurance. These programs track your mileage and driving habits, such as speed and braking.

How much can you save with Pay-Per-Mile insurance?

The actual amount you can save depends on your particular situation, just like when you have a traditional auto policy.

Related: Compare auto insurance rates with EverQuote

For example, Liberty Mutual’s ByMile says customers can save an average of 25%, and Mile Auto says customers save up to 30-40% on standard insurance rates. Metromile says its customers save an average of 47%.

To illustrate how much you can save, let’s say you have a monthly base fare of $ 29 and a per mile fare of 6 cents. If you drive 100 miles in a month, you’ll pay $ 35 ($ 29 base rate + 6 cents × 100 miles) for auto insurance that month and $ 420 per year. Compare this estimate to your current monthly auto insurance bill if you are a low-mileage driver.

Is Pay-Per-Mile Insurance Right For Me?

The average American driver travels about 13,500 miles per year, or about 37 miles per day, according to the most recent data from the United States Department of Transportation. Chen says the national average or fewer miles is considered “low mileage” in the insurance industry.

He estimates that 65% of American drivers are low-mileage drivers, people who could potentially save money with mileage insurance.

Drivers who can benefit from a pay-per-kilometer auto policy may include:

  • People with short journeys

  • People who work from home

  • People who take public transport

  • Senior drivers

If you think pay-per-kilometer coverage might be right for you but you’re not sure, you can try it before you buy. The Metromile app, for example, offers a Ride Along feature that allows drivers to track their mileage for about two weeks and then get a car insurance rate estimate to see if they’ll save.

Or you can download a third-party mileage tracker and track your trips. This way you can see if your mileage is really low.

Related: Compare auto insurance rates with EverQuote

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