Pay-Per-Mile Insurance: Same Protection, Less Premium

Pay-Per-Mile Insurance

By Alice Yao | Updated June 22nd, 2020

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

  • Work remotely
  • Commute via public or company transportation
  • Retired folks
  • Young drivers
  • College students

A Pay-Per-Mile policy allows insurance companies to calculate your insurance premium matching your specific risk exposure. When you spend less time on the road, there is a lower chance of getting into an accident, and in turn, lowers your car insurance cost. 

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

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. 

This article is broken down into three parts:

  1. How does the premium calculation work? 
  2. How do I get started with setting up an account?
  3. Is Pay-Per-Mile policy right for you?

Person Making Calculation

How does the premium calculation work?

The factors used to determine Pay-Per-Mile premium are the same as traditional coverage. There are two rates that you will see in your 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 that will be tallied every time you drive. 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, and if there are other changes that affect policy rating, you may see fluctuations on both premiums.

Here is an example* of how the calculation works: 

Miles Driven
Per Month
Daily Rate Per Mile Rate Total Monthly
500 miles $1.50 $0.06 $75
600 miles $1.30 $0.05 $69
700 miles $2.00 $0.09 $123
*Above example uses estimated numbers that do not reflect an actual quote.

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. 

OBD Port

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 OBD II port. 

The diagnostic port is usually located under the bottom left area of your dashboard, beneath the steering wheel column. See above image for reference. 

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 you?

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

  1. Expected annual average 
  2. 10% below the annual average
  3. 10% above the annual average

This way you can have a good idea of what your savings might be, especially if you are near the breakeven point with traditional insurance.

There may also be flexibility of switching back and forth between traditional insurance and Pay-Per-Mile depending on your insurance company. If you choose a company that only offers Pay-Per-Mile policy, this option would not be available. 

Be sure to talk to your agent to find the insurance solution that best fits your needs.

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