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 the majority of US states. For the right driver, however, it can be a great bargain.
We’ll first cover what pay per mile car insurance is all about. Then we’ll discuss whether it’s right for you and where you can buy it.
Table of Contents:
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 First Pay Per Mile Car 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 offered 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 worked was 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 1,000 miles per six months.
So how did 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 avoided privacy concerns some have with technology that uses GPS and the like to track how far you’ve driven.
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.
Our partner Metromile is the only auto insurance company that focuses on the pay per mile platform. According to this Society of Automotive Engineers study, a majority of drivers overpay to subsidize high mileage drivers; the same way that a healthy person subsidizes a sick person when paying for health insurance. So how does it work?
The premise is simple. Every driver pays a base rate depending on a variety of factors–location, age, driving history, etc. On top of that base rate, everyone pays a cost per-mile rate. For example, a quick quote generated a per mile rate of 3.2 cents. Add up the base rate and the number of miles you drive every month, and you have yourself an auto insurance policy.
The unfortunate thing however, is that Metromile is currently only available in seven US states.
- California, Oregon, Washington, Illinois, Virginia, Pennsylvania and New Jersey
How Metromile Works
Metromile tracks the amount of miles you drive using wireless device that you plug into the OBD-II port. You may not realize you have one of those, but they’re usually located around the feet of the either the driver. I used this device when I signed up for Progressive Snapshot (more on that in a minute) and outside of plugging it in the first time, no other work is required.
All policies can include the same insurance you would find from other major carriers. These include property damage, bodily injury, collision, comprehensive, PIP/medical payments coverage, and rental car insurance. Premiums are charged per month, and teach month’s bill will include the next months’ base rate (for when your car isn’t moving) plus the previous month’s miles charge (your per-mile rate times your mile driven).
Editors Note–Metromile underwrites their own policies.
Long Trip Discount
One cool feature of the pay per mile platform is long road trips. Metromile caps out at 250 miles per day (and 150 miles per day in New Jersey). This means that if you drive 700 miles in one day, 450 of those miles end up being free. Your account will only be billed for 250 of them.
Low Cost Alternatives
If you don’t live in one of those seven states, 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 three 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.
A few years back Progressive came out with the Snapshot program. Progressive gives you a simple device to plug into your car. The device 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 35%. As you would suspect however, Snapshot is not available in all states. Oddly enough, two of the larger states, California and North Carolina do not have access to this program.
We shouldn’t underestimate the power of shopping around. It’s easy to get multiple auto insurance quotes online. Be sure to compare the exact same coverage. It’s the only way to know if you are getting the best deal.
Here are several options in your area:
Is Pay Per Mile Auto Insurance Right For You?
I work from home. If I’m traveling in my four door Kia Forte, it’s usually to the bank, post-office or grocery store. All of those locations are less than 10 miles away so I conservatively estimate I drive no more than 30 miles a week. If I didn’t live in the state of Connecticut, I’d jump on the chance to reduce my car insurance rates through Metromile. Unfortunately for me, I’m likely one of the 65% subsidizing other drivers. So Progressive insurance for me.
If you find yourself in the same situation I’m in and live in a state that Metromile services, they’re certainly worth a look. After just a few minutes of offering general information, you should have a handle if they’ll save you money.