Haris Ashley
The number of miles you drive annually is a significant factor in determining your car insurance rates. Insurance companies use your annual mileage to assess your risk of filing a claim, as the more you drive, the higher the likelihood of an accident. Therefore, updating your mileage can result in an increase or decrease in your insurance rate. While some insurers rely heavily on mileage, others focus more on driving behaviour and location. It is important to provide accurate mileage information to your insurer, as underreporting can be considered fraud and may invalidate your policy.
| Characteristics | Values |
|---|---|
| Mileage impact on insurance rates | The more miles driven, the higher the insurance rates. |
| Insurance company's mileage data collection | Mileage data is collected through telematics programs, pay-per-mile insurance, mobile apps, devices, insurance photo inspection sites, service records, and MOT records. |
| Mileage estimation | Insurance companies ask for estimated annual mileage when purchasing a policy, and underreporting mileage may be considered fraud. |
| Mileage-based insurance rates | Some companies offer pay-per-mile insurance or usage-based insurance (UBI) with discounts for safe driving. |
| Low-mileage discounts | Updating mileage or informing the insurer of decreased mileage may lead to lower premiums or low-mileage discounts. |
| Factors affecting insurance rates | Age, gender, driving record, vehicle type, coverage level, location, and vehicle usage also influence insurance rates. |
| Mileage impact on policy cancellation | Exceeding annual mileage may invalidate the insurance policy or lead to policy cancellation by providers with strict mileage limits. |
| Mileage adjustment fees | Updating mileage details may incur adjustment fees, and increased mileage may result in higher insurance rates. |
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What You'll Learn
Mileage-based insurance
The number of miles driven is one of the most important factors in determining insurance rates. The more miles driven, the higher the chance of being involved in an accident and filing a claim. For example, a Verisk analysis found that vehicles driven less than 3,000 miles annually are involved in 40% fewer claims, while cars driven 20,000 miles or more annually record 31% more claims. As such, drivers who clock up fewer miles on their vehicles can benefit from lower insurance rates.
Pay-per-mile insurance uses various tools to track mileage, including mobile apps, plug-in devices, and odometer photos. The formula for calculating monthly premiums is: Monthly base rate + (per-mile rate x approximate # of miles per month) = pay-per-mile insurance monthly premium. For example, if the base rate is $30 and the per-mile rate is $0.05, driving 500 miles in a month would result in a monthly rate of $55.
It is important to note that not all insurance companies rely solely on annual mileage to set rates. Some insurers, like Farmers, base their rates on the average number of miles driven by all drivers, taking into consideration that most accidents occur within 5 to 10 miles of a driver's home. Additionally, other factors such as age, gender, driving record, vehicle type, and credit score also play a role in determining insurance rates.
While pay-per-mile insurance can offer cost savings for low-mileage drivers, it is important to consider the trade-off between privacy and savings. Some individuals may not be comfortable with their insurance company tracking their location or installing a device in their car. In such cases, finding a company that only requires odometer photos may be preferable.
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Discounts and refunds
Low-mileage drivers can benefit from discounted insurance rates, as they are less likely to be involved in accidents and file claims. Most insurance companies offer low-mileage discounts, but the mileage requirements and discount amounts vary. For example, Metromile offers a discount for driving under 10,000 miles annually, while State Farm offers a discount for under 7,500 miles. The average discount is about 7%, but it can be much higher, and you can save between $95 and $700 per year. USAA offers the best rates for low-mileage drivers, but it is only available to military members and their families. Travelers is another good option, and GEICO also offers competitive rates.
Some companies offer pay-per-mile insurance, where you pay a base rate and an additional charge per mile driven. Allstate, Nationwide, and Metromile offer these programs. Root also bases its rates primarily on driving habits rather than personal factors like age and credit score, which may benefit low-mileage drivers.
Usage-based insurance (UBI) programs offered by many insurers monitor your driving behaviour to determine if you qualify for a discount. For example, Progressive Snapshot and Allstate Drivewise use mobile apps or plug-in devices to track your driving. Safe driving can earn you discounts of up to 40% with Allstate.
To qualify for low-mileage discounts, you may need to submit an annual picture of your odometer or provide an estimate of your annual mileage. It's important to review your policy to see what the annual mileage is listed as, as some companies assume an average of 12,000 miles. If your average mileage is lower, you can change it on your policy to receive a discount.
In addition to low-mileage discounts, there are other ways to save on insurance. You can raise your deductible (if you can afford to pay a higher amount out of pocket), bundle your auto insurance with other types of insurance, or ask about discounts for accident-free periods. Reviewing your coverage to drop comprehensive and collision coverage for older cars can also reduce costs.
Updating your mileage with your insurer is important to ensure accurate rates, and underreporting mileage may be considered fraud. While driving less may not always result in immediate savings, it can benefit you in the long run.
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Insurance fraud
Updating your mileage with your auto insurer can help lower your premiums or help you qualify for a low-mileage discount. The more you drive, the more likely you are to get into an accident, so insurance companies want to know how many miles you drive to determine how big a risk you pose as a driver. This is why insurance companies will typically ask you to estimate the miles you drive. However, it is important to do so accurately because misleading your insurer about the number of miles you drive can be considered a form of insurance fraud. Under-reporting your mileage means an insurer lacks the proper data to set your rates, so they might be undercharging you. This is technically fraud and it costs insurance companies money.
Insurance companies are trying to find ways to save money, and one of them is finding more accurate ways to measure mileage and charge more accurate prices. For example, insurance companies may use annual mileage to work out your car insurance price, so it's important to be as accurate as possible. Going well over your annual mileage could mean your car insurance gets invalidated. Insurance companies can check your MOT to see if your estimated annual mileage matches official records, so if you lie or significantly underestimate your annual mileage, your cover could be invalidated.
There are several ways to save money on car insurance. You can raise your deductible, bundle your auto insurance with other policies, ask about discounts, or review your coverage.
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Usage-based insurance
UBI differs from traditional insurance, which bases premiums on historical data such as driving records, credit-based insurance scores, personal characteristics, vehicle types, and garage locations. Traditional insurance attempts to differentiate and reward "safe" drivers with lower premiums and/or a no-claims bonus. However, this differentiation is based on past trends and events, and it may take a long time for safer (or more reckless) driving patterns and lifestyle changes to be reflected in premiums.
UBI, on the other hand, uses telematics data to track and measure various driving behaviours, including miles driven, time of day, location, rapid acceleration, hard braking, hard cornering, cell phone usage, and airbag deployment. This data is then used by insurers to determine premiums. UBI programs typically track driving behaviour over an initial review period, after which discounts may be offered based on the telematics data and driving score.
There are several variations of UBI, including PAYD, PHYD, pay-as-you-go, and distance-based insurance. PAYD calculates premiums dynamically, typically according to the amount driven. The simplest form of PAYD bases insurance costs on distance driven, but costs may also depend on how, where, and when one drives. PHYD is similar to PAYD but also uses additional sensors like accelerometers to monitor driving behaviour.
While UBI can lead to lower rates for good drivers, it is important to note that it may not be suitable for everyone. According to a JD Power auto insurance report in 2022, over 40% of consumers who enrolled in a UBI program saw their rates increase. Additionally, UBI raises privacy concerns, as it involves continuous tracking of vehicle location and personal information.
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Policy cancellation
If your insurer finds that you have intentionally misrepresented your mileage, they may deny claims or cancel your policy for providing false information. This is because the number of miles you drive each year affects your insurance rates and the likelihood of filing a claim. The more miles you drive, the higher your insurance policy cost will be.
If you are considering cancelling your policy due to high premiums, be aware that insurers often charge a cancellation fee. You may also face additional cancellation fees if you pay by direct debit, as you are essentially paying back a loan with interest. If you paid annually, you will likely pay a standard cancellation fee and receive a refund for the months you haven't used, excluding the remaining two.
To avoid policy cancellation and potential issues such as claim disputes, it is important to update your mileage with your insurer. This can help lower your premiums and qualify you for low-mileage discounts. Some insurers offer pay-per-mile policies, which are ideal for low-mileage drivers. Providing accurate mileage helps to avoid denied claims and overpaying for coverage.
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Frequently asked questions
It depends. Insurance companies use annual mileage to calculate your insurance rate, so if your mileage increases, your insurance rate may also increase. However, if your mileage decreases, your insurance rate may decrease as well.
Insurance companies use mileage to predict the risk of you filing a claim. The more miles you drive, the higher the chance of getting into an accident and needing to file a claim. Therefore, higher mileage typically leads to higher insurance rates.
There are several ways to save money on your insurance policy even if you have high mileage. You can raise your deductible, bundle your auto insurance with other types of insurance, ask about discounts, or review your coverage to see if there are any adjustments you can make.
