Pay Per Mile Auto Insurance: How to Pay for Only What You Need

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Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Cynthia Lanctot is an insurance professional with ten years of industry experience. Cynthia is licensed in several states, and holds an associate in claims law, as well as a bachelor’s degree in English. Cynthia’s experience includes the New England and Northeast states. She currently works as a liability claims professional and an occasional online contributor.

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Reviewed by Cynthia Lanctot
Licensed Agent

UPDATED: Jul 16, 2021

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One of the biggest complaints about auto insurance is that you feel like you are paying into something that you hope and pray never to have a need for. It feels like an investment in something you are never going to use. Insurance only is valuable to the insurance companies right up to the time when you have an accident or a covered loss. But what if you could pay for insurance coverage that actually considers how you drive and how much you drive and then factors that information in to the rates automatically? What if you didn’t pay insurance based on averages of countless other people just because they are the same age or same gender that you are? This would be insurance that gives you just the coverage that you need and is based entirely on your personal driving record.

The Basics of Pay Per Mile Auto Insurance

As the name implies, pay per mile auto insurance has rates that are based on mileage, time spent driving, or some other variation. It can be called by other names such as pay as you drive, mile based, or pay how you drive insurance, but it all refers to the same basic concept. Instead of having generalized, standard insurance rates, your insurance is determined by information gathered by your car’s odometer or GPS data from a connected smart phone or from another type of data recorder that is used to record things such as average speed, distances traveled, time of day of travel, and other factors.

Additional data can include the history of the roads that are being traveled, such as conditions, existing problems, and known accidents there. There are several major auto insurance carriers that have this type of insurance, but it is not allowed or considered appropriate for every driver or every situation. It is also not available in every area.

A Major Benefit: Immediate Feedback

Auto insurance rates tend to fluctuate for some people more than others. For people whose rates are going to be going down, the benefits are typically slow in coming and may not be substantial enough to take notice of. For others, the changes can be faster but enough of an increase that they change insurance companies.

One of the biggest benefits of the pay per mile auto insurance is the ability to have immediate feedback both in terms of how you are driving and in the cost of your auto insurance. For instance, if you suddenly start driving greater distances, you will be hit with higher insurance rates right away. On the other hand, if you start working from home or retire, your rates will automatically go down because you are no longer driving back and forth to work every day.

Another benefit of immediate feedback is seeing exactly how you are driving. For instance, you might be unaware that you tend to speed on a certain stretch of road. The snapshot of your driving will put that into perspective for you, and you may make conscious changes before you are given a ticket for speeding, or worse, you have an accident of some kind.

Some of the Drawbacks

In addition to not being available everywhere, there are some negatives about pay per mile auto insurance. First, you may still need additional types of coverage to meet your state’s minimum requirements, so always know just how much you legally have to have. Second, your data may not be as accurate in some cases. Perhaps you are a careful driver but the roads that you travel are deemed “higher risk,” or you are driving on mostly safe roads but tend to be a more reckless driver. Either way, you are not getting a fair and accurate picture of your driving and may not be getting the best possible rate for coverage.

Because of the fluctuations from the readings, you may not be able to pay for this insurance several months in advance, meaning that you will have to pay a bill more frequently. This may also cause an added expense of fees associated with the billing.

Complaints about unfair recording of data or bogus mileage readings are also a problem that must be considered. Some people are also unsure of being “spied” on by their insurance company just to save money on their auto insurance.

Before You Sign Up

If you do have this type of insurance available in your area, there are some things to consider before you sign up:

  • Make sure that the insurance will meet your state’s legal requirements for coverage.
  • Understand how the insurance rates will be determined. Will you have a tracking device installed in your vehicle, or will you need to use an app that tracks GPS data via your smart phone?
  • Understand that not everyone will see substantial savings with this type of insurance, especially if you drive a lot or tend to have bad driving habits.

Costs will change frequently, so you may not be able to budget—especially if you tend to have fluctuations in mileage that come in cycles. This can be the perfect insurance for people who drive more in certain months than others. You are only paying for the insurance that you need rather than paying the same amount regardless of driving changes.

It is important that you compare rates of both this type of insurance and traditional insurance before making a final decision because not everyone benefits from the pay per mile based insurance. You might think that you are saving money when you are not only losing it but also putting yourself and your property at a potential risk. Comparing policies even within the same company is always a good idea and one of the first things you should do when choosing a policy, whether it is a new policy or replacing an existing plan. You always want good coverage at a fair price no matter what you decide on.

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