Low Mileage, Lower Premiums: How Your Commute Distance Impacts Car Insurance Rates

The number of miles you drive to work can impact your auto insurance rates. Generally, the more you drive, the higher your insurance rates will be. This is because the more you're on the road, the higher the chance you'll get into an accident. However, if you drive less than 7,000 or 5,000 miles annually, you may be eligible for a low-mileage discount. Additionally, pay-per-mile insurance plans are available for those who drive very little, allowing you to pay for coverage based on how many miles you drive.

Pay-per-mile insurance

How it works

Insurance companies use technology known as "telematics" to track how far you drive, either using an app or a device that plugs into your car's OBD port under the dashboard. Some pay-per-mile programs, like Nationwide SmartMiles and Metromile, use tracked driving behaviours to price rates or discounts. The safer you drive, the lower your premium may be.

Most pay-per-mile companies also have a mileage cap, specifying the maximum number of miles policyholders will be charged for in one day. For example, if you have a mileage cap of 150 miles per day and drive 250 miles, you will only be charged for the first 150 miles of your trip.

Who should use it?

• Take mass transit, walk or cycle
• Work from home
• Are retired
• Have a second vehicle they rarely use
• Drive a leased car with strict mileage limits
• Only drive at the weekends
• Are college students who don't commute to class

The amount you can save with pay-per-mile insurance depends on how much you drive and which insurer you choose. Metromile, for example, advertises that customers save an average of $611 per year when they switch from standard insurers. Mile Auto, another pay-per-mile insurer, says drivers can save 30% to 40% off their current car insurance rates.

Only a handful of insurers offer a pay-per-mile insurance option. Some companies, like Metromile, specialise in this type of insurance, while a few large insurers, such as Allstate, also offer a per-mile option. Here are some of the companies offering pay-per-mile insurance:

• Allstate Milewise
• Metromile
• Mile Auto
• Nationwide SmartMiles

Low-mileage discount

The mileage on your car influences how much insurers charge for premiums. Generally, people who drive less often have a decreased chance of being in an accident, so insurance companies reward those who pose less risk with lower rates.

The definition of a low-mileage driver varies across insurance providers, but it typically refers to those who drive infrequently or under a certain mileage every year. This threshold is usually set at around 7,000 to 7,500 miles annually, or 10 miles per day.

Some car insurance companies offer telematics apps that track your driving and provide usage-based discounts. These apps can monitor your driving behaviour and reward you for driving safely, even if you're not on the road less. However, these programs require you to allow your insurance company to track you, so they may not appeal to those with privacy concerns.

If you're interested in taking advantage of a low-mileage discount, you'll need to understand whether or not you qualify and actively seek a discount. First, calculate your current annual mileage by setting your car's odometer to zero and waiting a week. After a week, note the number of miles you've driven and multiply that figure by 52 to get your estimated annual mileage. If you're driving more than 7,500 miles a year, consider whether you can reduce your mileage by carpooling, walking, or taking public transport. Finally, reach out to your insurance company and get quotes from others to see if you qualify for a low-mileage discount.

Usage-based insurance

There are two types of usage-based programs: driving-based and mileage-based. Driving-based programs measure factors like how hard and how often you brake, how quickly you accelerate, and the time of day you drive. Mileage-based programs only measure how many miles you drive. Both types rely on telematics to gather information about your driving behaviour.

UBI programs can benefit both the insurer and the insured. Insurers can use the data to more accurately price policies, while drivers may earn a rate reduction by proving they are a safe driver. Additionally, drivers may be incentivised to improve their driving habits, and the tracking provided by UBI can be useful in the event of an accident. However, drivers who frequently exhibit aggressive driving behaviours like harsh acceleration and braking may see their policy cost increase as a result of UBI.

Some UBI programs provide feedback on your driving habits, which can help you identify areas for improvement. To get the most out of these programs, it's best to avoid driving after midnight and to refrain from driving long distances during the initial data collection period.

Telematics car insurance

Telematics insurance offers several benefits to drivers. It encourages safer driving habits by making drivers more conscious of their driving behaviour. The black box acts as a useful tracker, helping to locate the car if it is stolen. Additionally, the data collected can be used as evidence in the event of an accident, helping to determine who was at fault.

When considering telematics insurance, it is important to note that there may be rules and restrictions imposed by the insurance provider. Some policies include a curfew, limiting driving during certain times, typically at night. There may also be mileage limits, and driving over the estimated mileage could result in higher premiums. It is essential to carefully review the terms and conditions of the policy before committing to it.

Overall, telematics car insurance provides an opportunity for drivers, especially young and new ones, to prove their safe driving skills and be rewarded with lower insurance premiums. By monitoring driving behaviour and providing feedback, it also encourages the development of safer driving habits.

Annual mileage

The average American drives 13,476 miles per year, according to the Federal Highway Administration's 2022 report. However, insurance companies use 12,000 miles a year as the average when calculating insurance rates. If you drive more than 20 miles each way to work, your car insurance rates will be higher.

To estimate your annual mileage, you can use recent mechanic records or track your miles for a month and multiply by 12. It's important to accurately report your car usage and mileage to your insurance company. If you rarely drive your car and don't use it for regular errands or commuting, your insurer may classify the car as being used for "pleasure," which could result in a lower rate.

If you drive less than 10,000 miles per year, you may be able to save money on your car insurance by opting for a pay-per-mile insurance plan. With this type of plan, you pay a base rate plus a per-mile rate for the miles you drive each month. However, pay-per-mile insurance is not available in all states, and it may not be cost-effective if you drive more than 10,000 miles per year.

Frequently asked questions