How Does Pay-Per-Mile Car Insurance Work?

Like a regular auto insurance policy, a usage-based car insurance policy uses factors such as your age, where you live, your driving history, and the make and model of your vehicle to determine your premium. But unlike a normal auto policy, you pay a daily or monthly base rate for your insurance based on the number of miles that you drive. Your car insurance bill is adjusted each month based on the number of miles that you drove the month before using a per-mile rate that is pre-determined by your car insurance company. You can still get the same great coverage on your car as you can through a traditional car insurance policy; you just pay less for your insurance.

Who Should Consider Pay-Per-Mile Auto Insurance?

Low-mileage drivers in the following categories should consider getting a pay-per-mile auto insurance policy.

 • If you work from home

 • If you are away at college and leave your car at home

 • If you are retired and don't use your car often

 • If you take mass transit or walk or bike to work

 • If you have an extra vehicle that you barely use

 If you are unsure how many miles you drive your car, you can monitor your mileage using your odometer. Simply write down your car's odometer reading and then assess it again 30 days later to see how many miles you drove that month. The average driver logs about 1,125 miles per month (13,500 miles per year), but if you drive less than 666 miles per month (8,000 miles per year), you could benefit from this type of insurance policy on your car.

Does My Insurance Company Know How Many Miles I Drive?

When you purchase usage-based insurance, your mileage will typically be monitored by a small device your insurer sends you that you install in your car or through your insurer's mobile app. If your insurer requires a device in your car, the device needs to stay plugged in at all times. The device or the mobile app reports your driving data back to your insurer so that your next month's premium bill can be adjusted accordingly. Some pay-per-mile insurers may also require that their policyholders take a photo of their car's odometer once a month to report the mileage.

Many auto insurers use these same devices or mobile apps to monitor your driving behavior and habits. The data they provide can help you reduce your monthly payment even further if you practice safe driving and use your car less, even if you don't opt for a usage-based policy.