Pay-Per-Mile Insurance: Is this the right policy for me?

Pay-Per-Mile Insurance

Personal Protection

Asset Protection

Deductible May Apply

By Alice Yao | Updated July 11th, 2020

Pay-Per-Mile insurance is a unique type of car insurance policy that is new to Washington State. This policy determines how much you pay for your insurance premium by the number of miles you drive.

Currently in Washington, there are only three companies that offer Pay-Per-Mile insurance: Allstate as MilewiseMetromile, and Nationwide as SmartMiles

In this article, we will go over these topics:

Driving in car

What is Pay-Per-Mile insurance?

When you spend less time on the road, you also reduce the chance of getting into car accidents. A Pay-Per-Mile policy allows insurance companies to consider this lower risk in evaluating a driver's premium. In other words, the less you drive, the lower your premium is under Pay-Per-Mile insurance. 

This new type of car insurance policy has become increasingly popular among folks who are:

  • Working remotely
  • Retired folks
  • Young drivers
  • College students
  • Commuting via public or company transportation

It is important to understand that Pay-Per-Mile insurance offers the same coverage limits and benefits as standard traditional auto policies. The difference is how insurance premium is calculated and charged. 

Person Making Calculation

How does the premium calculation work?

There are two rates that you will see in your insurance quote:

  • There is a minimal base premium. This is a daily fixed base premium and will be charged regardless if you drive or not. 
  • There is a per-mile rate premium. This is the variable portion of premium that is only charged to your account when you drive. 

If you make a change on your policy such as change of address or vehicle, or if there are changes that affect your policy rating, you may see fluctuations on both premiums.

Here are some quick examples of how the calculation works*: 

Miles Driven
Per Month
Daily Rate Per Mile Rate Total Monthly
Premium
500 miles $1.50 $0.06 $75
600 miles $1.30 $0.05 $69
700 miles $2.00 $0.09 $123

*Examples used estimated numbers that do not reflect an actual quote.

Keep in mind that your Daily Rate and Per Mile Rate are determined by the same factors as traditional car insurance, including:

  • Age and marital status
  • Driving history
  • Address
  • Car - age, brand, and model
  • Insurance history

OBD Port

How do I get started with setting up an account?

To get started on a Pay-Per-Mile policy, you will need to deposit a small down payment and set up an automatic payment account. The automatic payment account is where your insurance company will deduct your premium, either calculated per day or per month depending on available options.

In order for insurance companies to accurately determine the number of miles driven, you are required to install a device into the diagnostic port (known as the On-Board Diagnostic II port, also short for OBD II port) for each of your cars enrolled in the Pay-Per-Mile policy. All cars built after January 1996 will have an OBD II port. 

The OBD II port is usually found under the bottom left area of your dashboard and beneath the steering wheel column. If you have a problem finding the port, a Google search with your car make and model along with the term OBD II should help you find the port.

When plugged in correctly, this device allows accurate mileage readings from your car to properly calculate your per-mile premium.

Is Pay-Per-Mile policy right for me?

If you are driving an average of 8,000 miles or less annually, you are a great candidate for the Pay-Per-Mile policy. Our recommendation is to ask your insurance agent to provide a comparison breakdown using 3 different mileage scenarios: 

  • Expected annual average
  • 10% below the annual average
  • 10% above the annual average

This way you can have a better idea of what your Pay-Per-Mile premium might be including fluctuations in miles driven. It is especially useful if your premium is near the breakeven point compared to traditional insurance.

Keep in mind that some insurance companies may offer the flexibility of switching back and forth between traditional insurance and Pay-Per-Mile. So if you are not comfortable with this new policy, you may have the option of easily switching back to the traditional policy.

Every insurance company has its own guidelines. We always recommend talking to your insurance agent to discuss specific insurance topics in further detail. Working with an insurance agent is the best way to make sure you are properly covered.

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