What is pay-per-mile car insurance?

If you have this type of car insurance, your insurer will likely keep track of your daily mileage to help determine how much you pay. Pay-per-mile insurance is a type of car insurance policy that allows you to pay based on how many miles you drive.

Here’s how it works:

1. You choose coverage and limits

Just like a traditional car insurance policy, you choose the type of coverage you want, including comprehensive and collision, and set the limits and deductibles that fit your needs.

2. You pay a flat daily base rate

This base rate helps keep your vehicle covered, even on days when you don’t drive.

3. Your miles are tracked

Your insurance company will track how many miles you drive using a telematics device or your phone. A telematics device can easily plug into your vehicle’s onboard diagnostic port (typically located under the dashboard). You can also view your mileage and other driving information, like speed and braking trends, using your insurance provider’s site or mobile app.

4. You pay a per-mile rate

In addition to your daily base rate, you’re charged a per-mile rate based on how much you drive during the billing period.

Pay-per-mile insurance can range from about $58 to $150 per month, according to MoneyGeek. Monthly costs usually combine a fixed base rate which is often around $30 to $60 per month, with a per-mile charge averaging about $0.06 to $0.07 per mile. Since your mileage directly affects the per-mile price, your total cost will usually increase the more you drive.

Much like traditional car insurance, how much you pay can depend on factors such as your driving history, the type of vehicle you own, where you live, and the coverage you choose.

Some insurers set a maximum daily mileage charge which means you’ll only pay up to that limit for miles driven in a single day. This can help you avoid unexpected insurance costs if you exceed the maximum miles.

Pay-per-mile car insurance can be cheaper than a traditional policy if you don't drive very often. Because part of the price is based on how many miles you drive, people who drive less may pay less overall.

Pay-per-mile car insurance may be a good fit for drivers who are:

• Remote or hybrid workers who commute only occasionally
• Retirees who no longer drive daily
• City drivers who rely on public transportation, biking or walking to get around
• Households with multiple vehicles, especially if one car is driven less often
• Students or other infrequent drivers who only use their vehicle occasionally

Inversely, pay-per-mile insurance can be more expensive if you end up driving more frequently. With enough mileage, the mile-based charges add up – making the total cost similar to (or even higher than) a standard auto insurance policy.

Pay-per-mile insurance can be more expensive for drivers who:

• Have a long daily commute
• Frequently take road trips or drive long distances
• Use their vehicle for ridesharing or making deliveries

Pay-per-mile car insurance programs typically track how many miles you drive using either a mobile app on your phone or a small device installed in your vehicle. Here’s how each one works:

• A mobile app will use your smartphone’s GPS/location services to measure trips and mileage
• A plug-in telematics device connects to your vehicle’s onboard diagnostic port (ODB) to record driving data

Both options are used to determine how many miles you drive, but some programs will also collect trip distance, speed patterns and braking behavior.

Since mileage-based programs typically collect driving data, some drivers may have privacy concerns or considerations. It’s important to understand the following from your insurer before you enroll:

• What information is being collected?
• How will the collected information be used?
• How will the collected information be protected?