What to know about pay-per-mile car insurance

While every state has a state-required minimum for car insurance, paying the premium can get costly if you don't drive very often. Fortunately, there is an alternative. Pay-per-mile car insurance charges a small base rate and then a per-mile fee, allowing you to control the size of your car insurance payment based on how many miles you drive in a given month.

With that in mind, below is an overview of how pay-per-mile car insurance works. Read it over to get a better sense of whether this type of auto insurance policy is right for you. Armed with this knowledge, you should be able to make an informed decision about whether you are a candidate for this type of auto coverage.

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How does pay-per-mile car insurance work?

With a pay-per-mile policy, there are two components that go into your car insurance monthly payment: your base rate and your per-mile fee.

For its part, the base rate is determined similarly to policies from traditional auto insurers. The auto insurance company will look at a variety of different factors, including your age, your vehicle and your driving record, to determine how much you'll pay.

Then they will install a small device in your vehicle to measure how many miles per month you drive. Based on those numbers, you will be charged a small per-mile fee on top of your base rate. Usually, this fee is just a few cents per mile.

How does it differ from traditional car insurance options?

Traditional car insurance premiums are based on quite a few different factors. First, your car insurance provider will look at a few personal details, including your age, gender, credit score and driving record, to determine how likely you are to file an insurance claim. Then they will also look at the type of car coverage selected. For example, someone who has chosen basic liability coverage will have a lower premium than someone who has selected full coverage.

Traditional auto insurance policies may offer a discount for drivers who fall below a certain amount of miles per month. However, with pay-per-mile insurance, you don't have to worry about falling below a certain threshold. Instead, you’re simply charged based on the total number of miles you drive.

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How do car insurance companies measure miles?

Most pay-per-mile car insurance companies will track your mileage using a small device that plugs into a port near your steering wheel. You may need a newer car to get this device to work and it may not work with hybrid car models.

If you don't like the idea of a device tracking your mileage, other pay-per-mile car insurance companies allow you to take a picture of your odometer once a month to report your mileage.

How much does pay-per-mile insurance cost?

The rates for pay-per-mile insurance coverage will vary from company to company. Additionally, as mentioned above, your rate will vary according to your personal details and how much you drive. Typically though, each mile will add just a few cents to your bill.

If your goal is to save money, look for an auto insurance company that puts a cap on the number of miles you can be charged for per day. That way, if you go on a road trip, you won't have to worry about all those additional miles adding up.

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Who should opt for pay-per-mile car insurance?

Generally, you should only ask for a pay-per-mile insurance policy if you are an infrequent driver. As a rule of thumb, drivers who drive less than the national average of 12,000 miles per year could stand to save with one of these programs.

However, above that amount, you could end up adding to your car insurance cost if you pay per mile. So if you're planning on going this route, it's important to have a clear handle on how much you will be driving in the future.

The bottom line

Pay-per-mile auto insurance policies can be a great way for infrequent drivers to save money. However, these policies aren't right for everyone and they're not offered by every car insurance company.

If you think you might be a good candidate for one of these policies, it's a good idea to do your research first. It’s only when you have all the information in hand that you will really know for sure whether pay-per-mile car insurance is the right choice for you.

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