Haris Ashley
Mileage is a key factor that insurance companies consider when determining car insurance rates and setting insurance premiums. The more miles driven, the higher the insurance rates. This is because the likelihood of being involved in a car accident increases with the number of miles spent on the road. Insurance companies consider drivers who drive more miles to be high-risk, and thus charge them higher premiums. On the other hand, drivers who drive fewer miles are rewarded with low-mileage discounts.
| Characteristics | Values |
|---|---|
| Mileage impact on insurance | Higher mileage is associated with higher insurance rates as it increases the likelihood of accidents |
| Mileage estimation | Insurance companies ask for an estimate of annual mileage and charge based on that estimate |
| Mileage tracking | Some insurance companies track mileage through odometer readings, telematics devices, or apps |
| Mileage categories | Insurers rank policies across low, average, and high mileage categories, with low mileage being the cheapest |
| Low-mileage discounts | Some insurance companies offer low-mileage discounts or usage-based insurance for drivers with low annual mileage |
| High-mileage impact | Extremely high mileage may be considered insurance fraud and the policy may not be renewed |
| Mileage estimation forms | In California, drivers may be required to submit mileage estimation forms every three years |
| Mileage and location | Insurance rates also depend on location, with higher rates for commuting into busy metro areas |
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What You'll Learn
Mileage-based insurance programs
UBI programs generally fall into two categories. The first type monitors driving behaviours such as mileage, time of day, and changes in speed. These are sometimes called "pay-how-you-drive" programs. The second type only tracks mileage and may be called "pay-as-you-drive", "pay-as-you-go", or pay-per-mile plans.
Some UBI programs offer immediate discounts of 5-10% upon sign-up, and drivers can typically save 10-15% annually with usage-based insurance. The best discounts are given to safe drivers who don't drive a lot, but pricing factors vary between companies. For example, some companies only track mileage, while others monitor driving behaviours like acceleration, braking, cornering, speed, and distracted driving.
Pay-per-mile insurance is different from a low-mileage discount offered by some auto insurers. While a low-mileage discount provides a percentage off the cost of a traditional policy, pay-per-mile insurance determines your rate based on how far you drive. This type of insurance is best suited for people who drive infrequently or very little, such as those who work from home, attend college, or are retired.
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Low-mileage discounts
The exact mileage thresholds that define these categories vary across insurers, and each company has its own calculation for how many miles constitute low mileage. For example, some insurers may define low mileage as under 7,000 or 5,000 miles per year. It's important to note that while low mileage can significantly lower your insurance costs, insurers consider various other factors when determining your rates, including age, credit history, location, and driving habits.
If you're a low-mileage driver, you can explore several options to find the best insurance rates. Firstly, you can contact your current insurance company to inquire about any low-mileage discounts they offer. Traditional insurance companies may provide discounts for low-mileage drivers, although the savings may be minimal outside of California.
If you're open to it, you could consider enrolling in a usage-based insurance (UBI) program, which tracks your driving habits and mileage to offer potential discounts. Pay-per-mile insurance is a type of UBI where you pay a base rate and an additional fee for every mile you drive. Some policies even cap the number of miles you pay for, allowing you to drive for free beyond that limit. Major insurers like Allstate, Nationwide, and Metromile offer pay-per-mile insurance.
Before enrolling in any UBI or driver-tracking program, be sure to review what data the company tracks and how it is collected. Some companies may require you to install a mobile app or a device in your vehicle to monitor driving habits like phone usage, hard braking, acceleration, and more. Additionally, keep in mind that not all programs guarantee a discount, and some companies may even increase your rate if they detect risky driving behaviours.
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High-mileage drivers and insurance fraud
High-mileage drivers are often penalised by insurance companies, who view them as a higher risk. The more time spent on the road, the higher the chance of an accident, and so insurance companies will charge higher premiums to drivers who log more miles.
However, some drivers attempt to avoid these higher costs by lying about their mileage, which constitutes insurance fraud. This can take the form of soft fraud, where drivers exaggerate a legitimate claim or lie during the application process to get a lower rate. For example, a driver may set their insurance policy for 10,000 miles per year, but in reality, they drive 20,000 miles per year. This is a common form of fraud, as many drivers are unaware that insurance companies can check their mileage when they file a claim. While soft fraud is unlikely to result in jail time, it can still carry significant fines and legal fees.
More severe punishments, including prison time, are reserved for hard fraud, which is less common. This includes planning or inventing a loss for a claim payout, such as staging an accident or vehicle theft. Auto theft fraud, for example, involves the false reporting of a vehicle as stolen, with fraudsters filing claims with insurers after someone intentionally abandons their car or plans for someone to "steal" it and disassemble it for parts.
Insurance fraud is a serious issue, and those who are caught committing it may never be able to get insurance again, which can make things like driving a car or getting a home mortgage very difficult.
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Usage-based insurance
UBI helps align your auto policy's cost with your driving habits. While auto insurers traditionally use factors such as age, location, and motor vehicle report to determine your risk of an accident, UBI calculates your insurance rate by analysing how often and how safely you drive. UBI programs typically track driving behaviours such as speeding, harsh braking, rapid acceleration, and distracted driving. This is usually done through a smartphone app or a device plugged into the vehicle's on-board diagnostics (OBD-II) port.
After an initial review period, drivers may be offered a discount based on their telematics data and driving score. UBI programs can provide feedback on driving habits, allowing drivers to improve their driving and, in turn, their insurance rates. However, it is important to note that UBI programs may also lead to an increase in insurance rates if driving scores are not favourable.
One advantage of UBI is that it provides an incentive for drivers to adopt safer practices. With UBI, changes in driving behaviour are immediately reflected in the cost of insurance, encouraging drivers to reduce risky behaviours. Additionally, UBI can lead to improved driving habits by providing analysis and helping drivers identify areas for improvement.
UBI programs have become popular as they leverage technology to help insurers more accurately measure an individual's risk of an accident. By participating in a UBI program, drivers may benefit from both immediate discounts and long-term savings. However, it is important to carefully review the program's rules and potential consequences before signing up, as well as consider any privacy concerns associated with continuous vehicle tracking.
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Pay-per-mile insurance
Mileage is one of the factors that insurance companies consider when determining insurance rates. The more miles driven, the higher the insurance rates as there is a higher chance of being involved in an accident.
Insurance companies typically use telematics to track the number of miles driven by policyholders. Some companies may ask policyholders to install a plug-in device to monitor their mileage, while others may offer a mobile app to track driving habits and calculate monthly bills. For those concerned about privacy, some insurers, such as Mile Auto, allow policyholders to submit a photo of their odometer as proof of mileage.
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Frequently asked questions
Yes, higher mileage often leads to higher insurance rates. This is because the more miles you drive, the higher the risk of being involved in a car accident.
Insurance companies often ask for an estimated annual mileage when you apply for or renew your insurance. Some may also track your mileage with an app or device.
Insurers have different definitions of high mileage, but it typically starts at over 14,000 or 15,000 miles per year.
You should inform your insurance company as soon as possible. Underestimating your mileage could invalidate your insurance in the event of a claim.
You could consider a usage-based insurance policy, where your mileage determines your premium. You could also increase your deductible, but make sure you can afford the higher out-of-pocket cost.
