Alyssa Lane
The number of miles you drive each year can have a significant impact on your car insurance rates. Insurance companies consider those who drive more miles to be at a higher risk of accidents and, therefore, charge them higher premiums. Conversely, drivers who don't rack up a lot of mileage are often rewarded with lower rates. This is because the fewer miles you drive, the less likely you are to get into a collision.
| Characteristics | Values |
|---|---|
| Annual mileage affects car insurance rates | Yes |
| Reason | The more you drive, the higher the chance of getting into an accident |
| Average annual mileage | 13,476 miles |
| Low mileage | Less than 7,500 miles per year |
| High mileage | More than 20,000 miles per year |
| Insurance companies' mileage checks | Random checks during the year |
| Pay-per-mile insurance | Available in some states |
| Mileage reimbursement for accident victims | Yes |
| Mileage reimbursement rate | 17-19 cents per mile |
What You'll Learn
The impact of mileage on insurance premiums
The number of miles you drive annually is one of the factors that insurance companies consider when setting your premiums. The more miles you drive, the more likely you are to be involved in an accident and make a claim, so insurance companies consider you a higher risk and your rates will reflect this.
Insurance companies reward those who pose less risk, so drivers who drive less receive low-mileage car insurance discounts. Driving under 7,000 or 5,000 miles annually is usually considered low mileage, and can result in a discount of up to 20%. Driving over 12,000 miles a year is generally considered high mileage, and can increase your premium by up to 30%.
Some insurance companies offer pay-per-mile insurance, where you pay a base daily rate for every day you drive, plus a per-mile charge for each mile driven. This type of insurance can be ideal for low-mileage drivers, but it's important to note that if you start driving more, these policies could ultimately cost more than standard insurance.
It's also worth noting that not all insurance companies rely on your annual mileage to set your rates. Some companies base their rates on the number of miles logged by the average driver, or on where you drive rather than how much.
When you apply for insurance, you will be asked to estimate your annual mileage. It's important to be as accurate as possible, as underestimating your mileage could result in your policy being invalidated, and overestimating could mean you're paying more than you need to.
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Tracking mileage for reimbursement
Choose the Right Mileage Tracker
There are several options available for tracking mileage, each with its own advantages and disadvantages. These include paper mileage booklets, Microsoft Excel spreadsheets, expense systems with Google Maps integration, and GPS-based mobile apps. While paper booklets and Excel spreadsheets are easy to use, they can be time-consuming and prone to human error. Expense systems and GPS-based mobile apps offer more accurate and efficient ways to track mileage but may raise privacy concerns among employees.
Understand IRS Requirements
To ensure tax-free reimbursement, it is essential to comply with IRS requirements for mileage logs. The IRS requires that mileage be recorded within a reasonable amount of time, preferably on the same day as the trip. Employers must maintain mileage records for five tax years after filing a tax deduction. Additionally, employers, not employees, are designated as the custodians of these records.
Set Up an Accountable Plan
An accountable plan outlines reimbursement and expense allowances for employees and ensures that reimbursements are tax-free. To meet IRS criteria for an accountable plan, businesses must ensure that expenses are business-related, employees provide timely and detailed expense reports, and any excess reimbursement is returned within a reasonable timeframe.
Automate Mileage Tracking
Using an automatic mileage tracker app can save significant time and effort compared to manual methods. These apps can automatically detect and record trips, classify them as business or personal, and generate tax-compliant reports. Examples of popular mileage tracker apps include Everlance, Stride, TripLog, Hurdlr, and MileIQ.
Integrate with Other Systems
Look for mileage tracker apps that integrate with other software systems your company uses, such as CRM software or expense management systems. This integration can streamline your processes and provide a more comprehensive view of employee expenses and activities.
Respect Employee Privacy
When using GPS-based mileage tracking, it is essential to respect employee privacy. Choose an app that allows employees to edit trips and designate certain portions as personal, ensuring that personal data is not shared with employers. Set clear boundaries for using business mileage data, focusing on reimbursement and tax purposes rather than micromanaging employee movements.
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Low-mileage insurance
Insurance companies use different methods to track your mileage. Some may ask you to self-report your odometer reading, while others may use technology such as tracking devices or apps on your phone. Some companies also offer "pay-per-mile" insurance, where you pay a base rate plus an additional amount based on your mileage. This type of insurance is ideal for people who don't drive often, such as those who take public transportation or have a second vehicle they rarely use.
The amount you can save with low-mileage insurance depends on various factors, including your age, gender, driving record, and location. However, on average, low-mileage drivers can expect to pay around $1,973 per year for car insurance, which is nearly $100 less than the national average of $2,068 for those who drive 12,000 miles per year. In California, low-mileage drivers may save even more due to state laws that require insurance companies to consider mileage when setting premiums.
Several companies offer low-mileage insurance or pay-per-mile insurance options. These include:
- Metromile
- Mile Auto
- Allstate
- Nationwide
- Progressive
- State Farm
- Liberty Mutual
- GEICO
How to get low-mileage insurance
If you're interested in low-mileage insurance, the first step is to calculate your average mileage. You can do this by setting your odometer to zero and tracking the number of miles you drive over a week, then multiplying that number by 52 to get your annual mileage. Once you know your average mileage, you can contact insurance companies to ask for quotes and see if you qualify for any low-mileage discounts. It's important to note that not all companies offer low-mileage discounts, and the definition of "low mileage" may vary between insurers. Additionally, some companies may require you to be a policyholder for a certain number of years before offering a low-mileage discount.
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Usage-based insurance
UBI works by using technology to collect data on your driving habits such as how fast you drive, how hard you brake, how many miles you drive, and the time of day you drive, in order to calculate your risk level and adjust your rates accordingly.
There are two basic types of usage-based programs:
- Driving-based: Your driving habits are measured based on factors like how hard and how often you brake, how quickly you accelerate, and the time of day you drive.
- Mileage-based: Your insurer only measures how many miles you drive.
Both programs rely on telematics to gather information about your driving behavior. Telematics can transmit data from moving vehicles and share it with an information center.
UBI can be a win-win for both insurance companies and drivers. Some drivers can snag a lower premium with UBI than with traditional insurance, while insurance companies benefit by motivating policyholders to drive more safely.
Drivers usually save 10% to 15% annually with usage-based insurance. The best discounts go to safe drivers who don’t rack up a lot of mileage, though pricing factors vary between companies.
Most insurers will only use the data to calculate discounts and not to raise your rates. However, some companies, such as Progressive and Geico, do warn of the risk of an increase if you regularly engage in driving practices that they consider unsafe.
If you are a driver who practices consistently safe habits, you might save by switching to usage-based insurance or enrolling in a telematics program. If you are willing to adapt your habits to align with the behaviors your insurance company rewards, you may also consider enrolling in a usage-based program.
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How to save on car insurance
If you're not driving as much as you used to, you might be overpaying for car insurance. Here are some ways to save on your car insurance:
Look for low-mileage car insurance.
The definition of a low-mileage driver varies across insurance providers, but it generally refers to those who drive infrequently or under a certain mileage every year. According to the US Federal Highway Administration, the average American drives around 13,500 miles per year, or about 37 miles per day. Many car insurance providers define “low-mileage drivers" as individuals who drive around 7,500 miles per year, or roughly 20 miles per day.
Compare car insurance quotes.
Get free quotes from car insurance companies authorized to sell coverage in your state and compare rates to find the best deal for low-mileage drivers.
Ask your insurance provider about low-mileage discounts.
Some car insurance companies offer low-mileage discounts or savings for people who don't drive a lot. These discounts can be applied if you drive fewer than a designated number of miles each year, which varies by company.
Switch to pay-per-mile insurance.
With pay-per-mile insurance, your rate is based on your actual driving habits, making it a great option for low-mileage drivers who drive less than 10,000 miles a year. You'll pay a monthly rate to keep your vehicle covered, and then you'll be billed for the cost of the miles you drove over the past month.
Negotiate with your current provider.
If you're already a low-mileage driver, try letting your insurance company know you're driving less and ask for a discount. Some companies might ask if you drive your car primarily for business or personal leisure, or they may ask you to provide a photo of your odometer to benefit from their savings programs.
Drive less.
If you don't currently meet your insurance provider's definition of "low-mileage," try to reduce the number of miles you drive. You can do this by working from home, walking or taking public transportation, and using Google Maps to ensure you're driving the shortest route possible.
Shop around for a new company.
If you've already exhausted your discount options, you may want to consider shopping around for a new insurance company with better rates for low-mileage drivers.
Take advantage of other discounts.
In addition to low-mileage discounts, many insurance companies offer various other discounts, such as good student discounts, safe driver discounts, and accident forgiveness.
Choose a company with a usage-based insurance program.
Usage-based insurance programs use a telematics device or an app on your phone to monitor your driving habits and mileage. This allows the insurance company to more accurately predict the kind of client you will be and price your premium accordingly.
Consider pay-per-mile insurance companies.
Some insurance companies, like Metromile and Mile Auto, offer true "pay-as-you-go" models that base your premium on a monthly base rate plus a per-mile rate.
By following these tips, you can save money on your car insurance as a low-mileage driver.
Frequently asked questions
Driving 15,000 miles or more every year is generally considered high mileage. However, this number varies depending on the insurance provider.
Mileage is just one of many factors affecting the cost of auto insurance. Some of the other factors include the type and model of vehicle you drive, your age, your gender, and your driving record.
Insurance companies typically request your odometer reading or an estimate of your annual mileage when you apply for insurance. They may also track your mileage via an onboard device or by getting an odometer reading from you or a third party.
Insurers may offer lower rates for low-mileage drivers, especially those who drive under 7,000 or 5,000 miles annually. According to Insure.com, someone who drives 10,000 miles annually will pay 4% less than someone who drives 12,000 miles.
Low-mileage car insurance is a type of insurance where your premium is based on the number of miles you drive each month. Usually, you pay a flat monthly rate and a small per-mile fee.
