Pay-Per-Mile vs. Traditional Auto Insurance

What is the difference between pay-per-mile and traditional auto coverage?

Both pay claims if someone is injured or a vehicle or personal property is damaged because of an accident. Pay-per-mile and traditional coverage may also pay claims if your car is damaged by a covered natural disaster, or if it gets stolen. And both offer options like personal injury protection, comprehensive, and collision coverage. But there is a key difference: With traditional insurance you get unlimited mileage. You pay the same monthly premium whether you drive 5,000 or 20,000 miles per year.

With a pay-per-mile policy, drivers pay a base rate. Then, for each mile you drive, your insurance company charges you a specific amount. With pay-per-mile insurance, the more you drive, the more you pay.

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How can someone choose the best coverage for them?

Pay-per-mile insurance is usage-based insurance. So someone who drives very little may see cost savings with a pay-per-mile policy. Your driving record will impact the amount you pay per mile. If you have a good driving record and log fewer miles than most, pay-per-mile coverage might make sense.

If you commute to work or take road trips, traditional insurance is probably the best option. You can drive as much as you want, and your insurance will be the same price. Traditional insurance is also a good choice if you’ve gotten a speeding ticket or have been in an accident.

What are the downsides of pay-per-mile car insurance?

Pay-per-mile insurers usually track mileage and driving data. (They require that you plug a tracking device into your car or track your mileage via an app.) They might also track your acceleration, speeding, and other driving habits. People who prefer to protect their privacy might feel uncomfortable with this option. Also, some pay-per-mile insurance policies limit the number of miles you can drive each day. If your driving distance exceeds that cap, you may pay more.

These type of insurers also tend to be newer insurance companies, so they may not have a lot of claims experience. And they may not have an AM Best rating. So, information about their customer service, claims service, and financial strength may be lacking.

How can I compare auto insurance companies?

When you file an auto insurance claim, you want to know that it will get paid out (after hitting your deductible, of course). Before buying auto insurance, check the insurance company’s AM Best rating. This rating is an independent assessment of the insurer’s financial fitness.

AM Best reviews an insurance company’s financial data and leadership to assign a rating. Ratings span from A (superior) to D (poor); while a U score means the company is under review and its score may change.

It’s also important to look at customer service. Some companies offer customer service around the clock, while others only provide help during normal business hours.