The phrase “good problem” refers to the situation faced by drivers who don’t rack up a lot of miles on their odometers. Driving less miles results in less damage to your automobile, less money spent at the petrol station, and a lower risk of a collision.
They’re all positive things. However, you can still be paying for auto insurance that underpays you for your scant driving.
The Operation of Pay-Per-Mile Insurance
According to Rick Chen, a spokesman for pay-per-mile insurance provider Metromile, which Lemonade is anticipated to buy in 2022, “there’s a direct relationship between the miles individuals drive and the risk they’ll be in an accident.” Even if you rarely drive, others probably do. And that might affect the rate you pay because an overall rise in mishaps, repair expenses, or medical bills for injuries would raise rates for everyone.
According to Chen, insurers must account for these kinds of cases in their price. “They spread it out across their clientele.”
Despite this, insurers do provide low-mileage discounts; however, the reduction is often applied if your annual mileage is under a specific level, such as 8,000 miles.
How to Calculate Miles
Insurance companies need a precise method of calculating your mileage in order for pay-per-mile plans to function. Near the steering wheel, most people utilise a little gadget that connects into a port (called the OBD-II). Depending on the insurer, you might need a car with a model year of 1996 or later in order for the device to function. Additionally, some gadgets, like Nationwide’s, could not work with hybrid cars.
The Metromile device does track location in addition to distance, according to Chen, but the location service can be turned off for privacy reasons. If you leave it on, you can use the Metromile app to track and schedule journeys, monitor your gas expenses per trip, and find your car if it has been stolen.
The price of pay-per-mile coverage
Pay-per-mile insurance costs differ from company to company. As with typical auto insurance, premiums will differ from driver to motorist.
For instance, according to Scharn, the base rate for Nationwide’s SmartMiles programme is roughly 30% less than what a typical Nationwide auto insurance policy would cost. Therefore, if your typical insurance policy’s annual premium was $1,000, your base rate for SmartMiles might be around $300. According to Scharn, the charge per mile is typically 6.5 cents but can vary from 2 to 10 cents.
Who Benefits From Pay-Per-Mile Insurance?
Clearly, someone who doesn’t drive much might save money by switching to pay-per-mile insurance. But what constitutes “not driving much”?
On average, Americans drive 13,476 miles a year, according to the Federal Highway Administration. You’d have to drive less than that to save with pay-per-mile insurance, says Chen.
For example, if you were charged a base rate of $29 a month, a per-mile rate of 5 cents and drove 500 miles per month, you would pay a total of $54 a month for pay-per-mile car insurance. However, if you drive as much as the average American each month (1,123 miles), you’d pay about $85 a month.
When considering how much you drive, don’t mistakenly factor in the length of time your commute takes, especially if you spend time sitting in congested traffic.
“It’s not how long you spend in your car. It’s the distance you’re driving,” Chen says. “For most people, they’re simply not driving much at all.”
Car owners who don’t log a lot of miles might include:
- People who take public transportation to work and drive only on weekends
- People who work from home and don’t commute
- People with car leases that have tight mileage restrictions
- College students who live on-campus
- Retirees who seldom drive