Pay-Per-Mile Auto Insurance–A Great Idea Ahead of its Time

At first glance, it seems like a great idea. Pay by the mile auto insurance. Drive a lot, pay more. Drive less, and save. But what seems like a great idea has had difficulty gaining traction. For a variety of reasons, including technology, regulations, and marketing, pay as you go auto insurance has stalled in all but one state. And if you are thinking that California is the forward-thinking jurisdiction, think again. The winner here is Texas, but more about that in a minute.

The Benefits of Pay As You Go Auto Insurance

There are several potential benefits of pay by the mile auto insurance. According to one study (pdf download) by the Federal Highway Administration, pay-as-you-drive-and-you-save (PAYDAYS) insurance as it’s sometimes called would reduce miles driven by 10%. How? It would reduce miles driven as people factored in the cost of the insurance before getting behind the wheel. As it stands today, most insurance policies are based on fixed premiums regardless of how much you drive.

By reducing miles driven, we lessen our impact on the environment, reduce our dependence on foreign oil, and important to Dough Roller readers, we save money. We save money not only by reducing the cost of auto insurance, but also be reducing how much we spend on gas and the wear and tear on our vehicles. With respect to car insurance, this Brookings Institute study concluded that two-thirds of households would save $270 a year with pay as you drive auto insurance.

The Reality of Pay As You Go Auto Insurance

So by the mile auto insurance is a good idea. So why isn’t it more widely available? Back in 2008, a company located in Dallas, TX began offering car insurance by the mile. Called MileMeter, the company offers insurance for as little as $0.02 per mile. When the company launched, it was available in Texas thanks to a state law passed in 2001, which as MileMeter explains:

In 2001, the Texas House passed Texas HB 45, the cents-per-mile choice law, authorizing insurance companies to offer a cents-per-mile alternative to their dollars-per-year prices. Texas was the first state to change its insurance laws; others are now considering similar changes.

The way MileMeter works is pretty simple. You can get a quote online. Once approved, you buy one to six thousand miles every six months. If you go over your miles, you can log in to your account and buy excess miles. And if you don’t use all your miles, you can credit them to your next purchase of miles, subject to MileMeter’s minimum earned premium of 1000 miles per six months.

So how does MileMeter track your miles? You submit a photo of your odometer that includes your driver’s license in the photo. Low tech, to be sure, but it avoids privacy concerns some have with technology that uses GPS and the like to track how far you’ve driven.

MileMeter launched back in 2008 in Texas only, which raises the question, where is it available today? Texas. Unfortunately, most state laws prohibit this type of insurance. For one thing, some consumer protection laws require insurance companies to state the premium up front. With pay by the mile, the actual premium can’t be known for any sixth month period until the miles driven are known. While this seems like a silly reason to prevent pay as you go insurance (and it is a silly reason), it’s reality in most states.

Low Cost Alternatives

So if you don’t live in Texas, what are your options? Many insurance carriers offer low mileage discounts. The problem is that these discounts typically don’t save you a lot of money. Of course, take advantage of them if you qualify, but we are looking for some more substantial savings. And there are two options to consider.

OnStar Subscribers

If you drive fewer than 15,000 miles per year, have OnStar, have auto insurance from GMAC Insurance, Liberty Mutual, or High Point Auto Insurance, and don’t live in one of the excluded states, you may qualify for a low mileage discount of up to 50% or more. So why all the restrictions? Why only three insurance carriers? And why do some states prohibit these discounts? All very good questions without very good answers.

Still, if you qualify, the OnStar low mileage discount is definitely worth checking out.

Progressive’s MyRate Program

A few years back Progressive came out with the MyRate program. Progressive gives you a simple device to plug in to your car, which wirelessly and securely sends Progressive information about when, how much, and how you drive your car. Based on this data, Progressive can offer discounts of up to 25%. As you would suspect, MyRate is not available in all states. You can get an online quote from multiple insurance carriers, including Progressive, from insurance.com.

Published or Updated: June 6, 2013
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Money Smarts says:

    I’m currently with progressive and was considering trying out their My rate program – and then i realized just how aggressive I can drive sometimes, and decided it was probably not in my best interests to try it out. For better drivers? Maybe. :)

  2. PT says:

    Great find, DR. Guess who lives in Texas and can try this out??? :)
    Seriously, where do you find this stuff?

    • DR says:

      If you do give it a try, it would be great to hear what you think. I don’t recall how I stumbled about MileMeter, but it seems like a great concept.

  3. Edwin | Finantage says:

    Interesting idea but I think the market might be slightly low because people just prefer a pay and forget system where they don’t even have to take into account miles driven even if it would save them money.

  4. Zahid Lilani says:

    I have heard many people talk about this idea but I am in California and we live in the suburbs here and there is nothing close by. If something like this is implemented in California, I don’t know what would happen… only bad!

    • Catherine Maynard says:

      Zahid Lilani worries about the the cost of insuring his high annual mileage car “if something like this is implemented in California.” If MileMeter auto insurance were sold in California, Mr. Lilani could simply choose to stay with his current all-you-can drive, pay-per-year insurer and continue to have his policy price subsidized by cars driven lower annual mileage than his. In turn, he would continue to subsidize the cost to insure cars driven more than his.
      However, Zahid might be surprised to find his premium rising as the owners of lower mileage cars switched from his insurer to MileMeter, leaving him in a pool with other cars driven higher annual mileage and generating, as a group, higher per-mile costs to the insurer. And that, as he fears, would be “only bad.”

  5. Catherine Maynard says:

    Why is my comment hung up in Moderation Purgatory and what can I do to release it to advance to display on the site?

  6. Vincent A. Lewis says:

    Pay-Per-Mile Auto Insurance–A Great Idea Ahead of its Time.
    When will this great idea, start to become a reality?
    Because I want to jump on it, I am currently paying why to much,
    for my auto insurance.
    I ride the Bus and take, Light Rail ( Max ). Most of the time to get around
    to save money on gas, I have two job’s. One down town Portland, the other in S.E. Gresham.
    Thank you, for your time, regarding this matter.

  7. arby says:

    As I understand it, Progressive allows you to track your data online, and compute how it would affect your rates. If you don’t like the results, you can cancel the unit with no penalty. There may be some sort of time limit, 3 months or 6 months, I don’t recall. rb

  8. Ron says:

    Pay as you go insurance is a terrific idea; the most democratic way of charging for repair work on a car ever. It is as close as you can get to only being charged for the damage that you cause or is caue to you. Details would apply,of course.
    I am sure the standard insurance companies will do all they can to squelch the idea as quickly and as silently as possible.
    Iline and can find no official comments or updates(12/2010). Neither can I find any insurance companies selling it in California.
    I hope it catches on and forces the insurance industry to pay attention and offer it have been looking for updates on California’s current position on this on .

  9. Bob Gil says:

    I think insurance by the mile is a great idea. I just wish it would woek for me.

    I tried to get it for a vehicle that I only use to take my handicaped inlaws around. I only drive it about 20 miles a week to take them to church and to the doctor and stuff like that. I only put 5,000 miles on it last year but I found out that the do not cover any thing out of the orninary. They will not cove a 3/4 ton school bus that has been made into a handicap vichile to carry only 6 people around.

    Bob

  10. Matt says:

    MileMeter limits your minimum coverage to 4000 miles annually.

    I travel 1/4 of that distance per year in my truck, and many others even less. They must add lesser coverage options for the many less-road-dependent customers out there.

    It’s an interesting alternative, but still disappointing and significantly more expensive than my current auto coverage with a nationwide auto insurance company.

  11. Lois says:

    I drive my car very little. I used 1 tank of gas from May 2010 until May 2011. I don’t think I should have to buy 4000 miles when I am not going that far. I just go to the grocery store. Buying the 4000 is better than paying seven hundred dollars every 6 months.for regular insurance.

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