When you buy auto insurance, you typically pay a fixed premium by the month or for a certain number of months. Some new auto insurance policies allow you to pay by the number of miles you drive instead. How does it work, and is it something you should consider?
What is Pay-Per-Mile Auto Insurance?
Pay-per-mile auto insurance is exactly what it sounds like. Instead of having a fixed rate, you pay based on how many miles you drive during the billing period, just like how your electric or water bills work. In addition to the rate for mileage, there may sometimes be a small monthly base charge, just like you'd see from your utility company.
This is different from a traditional auto insurance policy that might offer a discount if you declare that you're a low-mileage driver. Instead of giving an estimate of your miles, you get charged for the miles you actually drive.
How Does the Insurance Company Know How Many Miles You Drive?
In order to use pay-per-mile insurance, you need to agree to plug a tracking device into your car. Your car usually has a plug for this device under your steering wheel since mechanics can also plug in a scanner there to run diagnostics on your engine and other parts. The device tracks your miles and sends data to the insurance company by connecting to your phone's internet or some other internet connection.
Some people may have privacy concerns over the tracking device, and it does give the insurance company additional information. However, it's not that different from an electric or water meter. Other apps also use your phone to collect data about you. It's really a personal choice you have to make.
Will You Save Money Paying Per Mile?
Most people switch to pay-per-mile insurance because they want to save money. People who drive short distances or drive infrequently will usually benefit the most from getting charged by the mile. If you have a daily commute, you would want to figure out how many miles you drive for your commute and on the weekends to get an estimate of what you'd pay.
You may also have concerns about what happens if you take a road trip or a long drive. Depending on how frequently you do this, you could still save money over time, even if that trip is more expensive. Some policies also cap how much you can get charged per day, even if you drive more miles.
To learn more about pay-per-mile insurance options, contact a local auto insurance today.