What is pay-by-the-mile insurance?

A car is in a garage and a person's hand can be seen with the garage door remote as the door goes down

As the name implies, pay-by-mile car insurance determines monthly premiums based on how many miles you drive. Users place a tracking device inside their vehicle (often a standalone piece of hardware or a smartphone app) that counts the number of miles. Insurers then multiply this number by a per-mile fee and add a base rate to get the total. Like standard insurance, base rates are calculated using factors such as vehicle type, driving record, age and credit score.

Pay-by-mile auto insurance most closely resembles full coverage. Users receive both comprehensive and collision insurance with the thought that the fewer miles someone drives, the less likely they are to get into an accident. This type of insurance is still relatively uncommon yet may grow in popularity as COVID-19 continues to disrupt standard routines.

Should I switch to pay-by-the-mile insurance?

As a woman works from home, she wonders if she can save on car insurance since she doesn't drive to work anymore

MoneyGeek can't answer that question for you, but we can give you the information needed to make an informed decision and find the best car insurance for your needs. If you live in California, Texas or Florida, chances are you drive more than the average American. Motorists in these states clocked the highest annual mileage while residents of Alaska, Vermont and Rhode Island put the fewest miles on their cars.

The Federal Highway Administration found that Americans drove an average of 13,476 miles in 2018. If your annual miles are near the national average, pay-by-the-mile insurance may be the best fit.

On the other hand, if you find that you drive substantially less than average, this type of insurance could help you save a significant amount of money. Individuals who walk, bike or use public transport regularly may be good candidates, as are those who work from home. Metromile, a company offering pay-by-the-mile insurance, states that customers save an average of $741 per year based on driving 6,000 miles annually. Those who drove 10,000 miles annually saved an average of $541 per year.

Which companies offer pay-by-the-mile car insurance?

A neighborhood is shown during a weekday with cars sitting in all the driveways

At first glance, it may seem that many insurers offer this service. However, it's important to note that services such as a low-mileage discount or pay-as-you-drive are not the same. The low mileage discount is given at the end of the year to those who drive under a certain number of miles. Pay-as-you-drive records, conversely, take in factors about how you drive in addition to how far. This can include data on how often you speed, take the interstate, or brake hard.

When considering pay-by-the-mile car insurance, you should note that this service is not yet available in all 50 states. You should check with each company to find out whether they serve your state. Some of the names to know in pay-per-mile auto insurance include:

  1. Metromile. This company specializes solely in pay-per-mile insurance. Users are charged for the first 250 miles driven each day (150 for New Jersey drivers), with mileage calculated based on an app downloaded to the driver's smartphone. Aside from collision and comprehensive coverage, Metromile users also have access to roadside assistance and glass repair. Drivers with more than one vehicle covered can receive a multi-car discount.
  2. Nationwide. The SmartMiles program includes both a fixed base rate and variable cost-per-mile rate that changes each month. The Nationwide program includes the same road trip exception as Metromile, meaning miles driven over 250 on a given day are not charged. Users can also receive up to 10% off as part of a safe driving discount.
  3. Allstate. The Milewise program at Allstate varies slightly from the previous two options in that it charges a daily base rate rather than a monthly rate. Users still pay the same per-mile rate based on their driving habits. The program is currently available in 16 states and uses an app to track daily miles.

Can I change my car insurance back if my lifestyle changes?

A woman is seen preparing to drive her daughters to school when school opens back up after COVID-19

Standard practice within the car insurance industry dictates that policies can be canceled at any time. While most drivers think of insurance as a binding contract, this is rarely the case. If you find that you're driving substantially less but paying the same rate, switching to pay-per-mile auto insurance, even temporarily, may be worth your while.

If you decide to do this, the most important thing to remember is that your new policy needs to be purchased and active before canceling your old one. Any gap in coverage could create a catastrophe in the unlikely event that your automobile was damaged while uninsured. Some auto companies also charge higher premiums or base rates if there was a lapse in coverage. If you decide to return to standard coverage, simply make sure your new policy is active before canceling your pay-per-mile insurance.

Whether you’re looking to save money in the short term as you drive less for now or have permanently changed the way you drive and will continue to drive less after the pandemic passes, by-the-mile car insurance is worth looking into. Your first step is getting a quote and comparing it to what you’re currently paying.

Katy McWhirter is a writer for MoneyGeek

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