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Is Pay Per Mile The Right Insurance For You?

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Most people are familiar with Pay How You Drive (PHYD) insurance that uses an electronic device to track their driving habits and rewards them for driving safely with deep discounts on their policies. However, there's another type of insurance called Pay Per Mile where the premium you pay is based on the number of miles you drive. Here's more information about this type of insurance to help you determine if it's right for you.

How Pay Per Mile Works

Sometimes referred to as Pay As You Drive insurance, Pay Per Mile is a type of usage-based insurance that works similar to utilities. You only pay for what you use or, in this case, the number of miles you drive per billing period. The miles are calculated in two different ways:

  • The submission of odometer readings at the start and end of the billing cycle. Some companies allow people to self-report this information and others require policyholders to submit photos of the number or take the vehicle to a special shop.
  • A device is installed in the vehicle that calculates the miles driven based on GPS data or time spent driving.

The insurance premium may be based on a per mile rate charged after the mileage is calculated or the policy may cover a specific number of miles over a certain period of time (e.g. 10,000 per year). The person's driving history, credit rating, and insurance coverage history also usually factors into the price charged.

Benefits and Disadvantages of Pay Per Mile

The primary benefit of Pay Per Mile insurance is the price savings. Since you only pay for what you use, you are not subsidizing high-mileage drivers, as is the case with prepaid and other types of insurance. Depending on the provider, you could save as much as 40 to 50 percent on your auto insurance costs if you drive less than 5,000 miles per year.

This can make insurance affordable for people who live in high-rate areas such as New Jersey, Rhode Island, or D.C. where rates are close to or over $1,100 per year. This type of insurance may also make it easier for teens and young adults to afford insurance: two groups who are typically viewed as high risk and, thus, are charged more for auto insurance.

The other benefit is the impact it may have on a person's lifestyle. In an effort to keep premiums low, the person may choose alternative means of transportation, such as taking the bus or bicycling, that can save money on gas or improve the person's health. These changes can also have positive impact on the environment as more and more people choose to leave their cars at home to save money, thus reducing pollution.

While the benefits are compelling, there are a few of disadvantages to this type of insurance. If your plan restricts you to a certain number of miles per month, you'll typically pay a surcharge for going over the limit. This can get expensive pretty quickly if you find you suddenly need to drive your vehicle more than usual.

Another drawback is you may be required to pay to have the tracking technology installed. This depends on the company and the type of vehicle you drive. Some companies give drivers the equipment to use and others may simply require a deposit. Your vehicle may not be compatible with the equipment used, which means you may need to have your car or truck retrofitted to use it.

Privacy is another concern. In theory, the tracking device would only monitor the number of miles travelled. However, since these types of devices are connected to GPS technology, it could also track your movements.

Does It Work for You?

The people who are likely to get the most benefit from Pay Per Mile insurance are those who don't do a lot of driving, such as teens or people who live in cities where having a vehicle is really not necessary. If you commute every day or frequently take long trips, you may be better served with regular prepaid insurance or Pay How You Drive insurance that offer deep discounts for good driving habits.

For more information about Pay Per Mile auto insurance or other types of coverage, contact an insurance broker or visit a site like