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Is Pay-Per-Mile Insurance Really Worth it in 2024?

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If it’s time to get insurance for your vehicle, a pay-per-mile policy could be worth considering. But what, exactly, do such policies entail?

Pay-per-mile policies are based on the general premise that the more miles you drive, the more likely you are to have a prang or otherwise need to call on your insurance coverage. 

By The Editors

Tue, Mar 12, 2024 05:59 PM PST

On this basis, someone who takes their car out, say, only a couple of times a week for short journeys, would pay significantly less than someone who uses their car to commute a significant distance every working day. It’s important to bear in mind, though, that a range of other factors will come into play when working out the insurance premium payable.

Why are these policies popular? They may help you save on your vehicle insurance costs - you could potentially save up to 50% compared to a standard policy. But is this always the case? In short, are such policies all they’re cracked up to be and really worth considering in 2024?

How Does Pay-Per-Mile Insurance Work?

To calculate the cost of pay as you go car insurance, the provider will first need to do several checks to find out how much, in general, you use your car. Unfortunately, they won’t just take your word for it! After talking through your insurance requirements, most providers will give you some options regarding assessing just how you use your vehicle. This is likely to involve using the odometer’s data to check how many miles you typically drive a month, looking at your braking frequency and intensity, and analyzing other data points that suggest the likelihood (or otherwise) of you being involved in an accident.

Often, this data is collected through software or apps that connect to your vehicle’s integrated systems. Sometimes, it’s done via a device that plugs into the car’s OBD II port. One month’s driving data is usually recorded. At the end of this time, the provider will calculate the insurance premium payable and give you your options for purchasing a policy.

And if you don’t feel comfortable sharing all this data with your potential pay-per-mile insurance provider? Some carriers allow you to buy a policy without sharing it but will require a photograph of your odometer every month.

Who May Save from a Pay-Per-Mile Insurance Policy?

Most obviously, those who only use their vehicle very lightly could significantly save by opting for a pay-per-mile insurance policy. However, it’s important to remember that this type of policy typically offers only basic coverage. If you want additional protection, you’ll need to pay more.

Very generally speaking, if you drive less than 10,000 miles a year, it’s worth exploring pay-per-mile insurance, as you could save a significant amount of money on premiums compared to a “regular” policy.

Checking Your Mileage

It’s a fact that many - if not most - people drive more miles than they realize. If you’re wondering whether pay-per-mile insurance could be for you, it’s a good idea to record just how many miles you drive in the average month. Be sure to record all details; even the shortest trips will add up over time. You may be surprised at just how high your mileage is.

Other Factors to Take into Account

Don’t forget that your insurance provider will take other factors into account when working out your premium, which could make pay-per-mile policies not as affordable as they seem at first glance. For example, previous insurance claims, your driving record, age, gender, the type of vehicle to be insured, and any traffic violations will all feed into the premium calculation.

Calculating Your Premium

As part of figuring out whether a pay-per-mile insurance policy is worth it, you can use this formula to get a rough idea of how much you’ll pay. Bear in mind, though, that exact prices will vary depending on the carrier. You can get the monthly base rate and the per-mile charge from the carrier you’re considering.

Monthly base rate + (per-mile rate x amount of miles you drive a month)

So if you drive 500 miles a month and the monthly base rate is $34 and the per-mile rate is 5 cents, this would work out as:

$34 + (0.05 x 500) = $59
So, $59 would be your monthly car insurance premium.

Final Thoughts

Pay-per-mile car insurance could offer significant savings on premiums for those who don’t often use their car. If you work from home, for example, are retired, or have switched to using public transport as much as possible to live more sustainably, they could be a great option. While other factors will ultimately determine your premium payable, as we’ve discussed above, these policies are definitely worth considering if your car spends much more time on your driveway than the asphalt. 

Featured photo by Frank McKenna

This article was compiled by the editors of LACar.

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