Pay by Mileage Car Insurance, Simplified

Pay by mileage car insurance is a relatively new – but increasingly popular – way to obtain car insurance. While this type of car insurance isn’t for everyone, it can make a lot of sense for drivers who are on the road less often. In this article, we help you understand what pay by mile car insurance is, how it works, and whether it makes sense for you.

What is pay by mileage car insurance?

Pay by mileage car insurance is a relatively new way of pricing car insurance based on charging drivers for the number of miles they drive per month. Put simply, pay by mile insurance provides the exact same coverage options as a traditional car insurance policy – the only difference is how you pay. Traditional car insurance charges you a single monthly fee regardless of how much you drive, however, pay by mileage insurance charges you a per mile fee.

Pay by mileage car insurance was first created in 1968, but wasn’t popularized until Metromile was founded and pioneered the product in 2013. Despite pay per mileage being a seemingly novel approach to car insurance, in reality, all car insurance companies already take into account the mileage you drive. You may have noticed that applications for car insurance almost always ask you to estimate your monthly mileage. Insurers long ago recognized that drivers on the road most often get into more accidents and have already factored mileage into their pricing models. So even if you don’t have pay by mileage insurance, you are still paying more if you drive more frequently!

Although traditional car insurance companies do take into account how much you drive, the truth is that most DO tend to overcharge drivers who are on the road infrequently! Pay by mileage car insurance was created specifically to cater to this class of infrequent drivers who are being unjustly overcharged by traditional insurance.

How does pay by mileage car insurance work?

Typically, pay by mileage car insurance works by charging a flat fee plus a per mile charge. The amount of the flat fee and the per mileage charge differs depending on other demographics (i.e. younger drivers may pay higher rates) and the type of coverage you select (i.e. higher limits = higher cost). At the end of the month, your insurance company calculates how much you drove and charges you based on your exact mileage.

pay by mileage car insurance monthly cost calculation example

How does the insurance company track how much I drive?

To accurately charge you, pay by mileage car insurance companies need a way to accurately track how much mileage you are driving. Each company tracks this mileage in different ways, however, below are three of the most common ways that companies get this data:

  • Installing hardware in your car: some pay by mileage car insurance companies track mileage through either a tracker installed in your car or one that is plugged into your car (such as MetroMile’s Pulse). This type of tracker calculates miles driven based on your car’s internal data and automatically sends your mileage directly to your insurer.
  • Downloading a smartphone app: some other pay by mileage car insurance companies track your mileage through an app you download to your smartphone (such as Noblr). This method calculates your mileage by using your phone’s GPS system.
  • Self-reporting: some other companies will allow you to self-report your mileage either by entering data online or taking a picture of your odometer (for example Mile Auto). Relative to other options, self-reporting is the least intrusive option, but requires the driver to do the most work.

Commonly, pay per mileage companies will make use of multiple methods to track your mileage and driving behavior. For example, your insurer may require that you both install hardware into your car and download an app on your smartphone.

Will my car insurance rates go down if I switch to pay by mileage car insurance?

Not necessarily! It may be obvious, but the impact on your car insurance rate depends on how much you drive. Drivers who are on the road often will not benefit from switching pay by mileage car insurance, and may actually see their car insurance rates increase.

Does pay by mileage insurance make sense for me?

Pay by mileage car insurance makes the most sense for people who drive the least often. Typically, the best candidates for pay by mile insurance include:

  • Retirees who drive sparingly and do not typically take their vehicles on long trips
  • Drivers that have a second vehicle that is rarely used, such as a luxury car
  • Remote or hybrid workers
  • Commuters who use public transportation, their bicycle, or walk to the office
  • Stay-at-home parents
  • College students who live on or near campus

According to the US Department of Transportation, the average US driver is on the road for approximately 13,500 miles per year. If you are driving significantly fewer miles than this, that’s a good indication that you should explore pay by mileage car insurance.

Who does pay by mileage insurance not make sense for?

Inversely, this coverage does not make sense for anyone who drives more often than the average driver. Pay by mileage insurance also may not be possible to buy in two scenarios:

  • You have an older car: often, the devices that insurers use to track mileage plug into your car directly. The devices typically require your car to have a certain minimum level of technology infrastructure – if your car is too old the device will not work.
  • It is not offered in your state: because pay by mileage insurance is so new, not all insurers offer the coverage in every state.

Do pay by mile insurance companies factor my other data into their rates?

While most pay by mileage car insurance companies advertise their insurance as “pay per mile”, many do factor your driving behavior into their pricing. Because many of these companies track your data using plug-in devices, they can collect (and use) much more extensive data than just your mileage. For example, Milewise factors in data like how fast you drive and the times when you are on the road.

If you are a dangerous or aggressive driver, you may want to avoid pay by mileage insurance or use a provider that doesn’t rely on plug-in trackers (see below).

Do pay by mileage companies share my data?

Pay by mileage car insurance companies do sometimes share your personal data. Many drivers are concerned with keeping their data private, and these concerns are well-placed since some car insurance companies do share your private driving behavior with partners (for example, Allstate’s Milewise now shares data with Ford).

Rest assured, however, that most of this data is likely anonymized when shared and not used for nefarious purposes. Nevertheless, if you are highly concerned with your privacy, be sure to ask your car insurance company their stance on data sharing (for example, Metromile does not share data).

What is the best pay by mileage car insurance company?

Today, there are relatively few companies that offer pay mileage car insurance, so it is difficult to determine which is the “best”. As of this writing, the options for pay by mileage car insurance, include:

CompanyHow Mileage Is Tracked
MetroMileA proprietary device plugged into your car
Milewise by AllStateA proprietary device plugged into your car and an app downloaded to your smartphone
SmartMiles by NationwideA proprietary device plugged into your car
Noblr by USAAAn app downloaded to your smartphone
Mile AutoSelf-reporting through pictures taken and submitted by drivers
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