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.
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.