Jeffrey Wade
The number of miles you drive annually is a factor that determines your car insurance rate. The more miles you drive, the higher your rate is likely to be. This is because the more you're on the road, the higher the chance you'll get into an accident and file a claim. Therefore, insurance companies consider you a higher risk, and your rates will reflect this. Conversely, driving a lower-than-average number of miles each year can lead to lower insurance rates. This is because insurers consider you a lower risk of filing a claim. Some insurance companies offer low-mileage discounts, usage-based insurance discounts, or pay-per-mile insurance products. However, it's important to note that the definition of low mileage varies among insurance companies and states, and other factors besides mileage can also influence your insurance rates.
| Characteristics | Values |
|---|---|
| Cheaper commercial insurance | Fewer miles driven |
| How it works | Pay-per-mile insurance or low-mileage discount |
| Pay-per-mile insurance | Monthly base rate + monthly mileage rate |
| Low-mileage discount | Percentage off the cost of a traditional policy |
| Average miles driven per year | 13,000 miles |
| Low-mileage threshold | Varies by insurer, typically under 12,000 miles |
| Discount qualification | Varies, typically under 7,000 or 5,000 miles |
| Savings | Up to 40% or more with pay-per-mile insurance |
| Low-mileage insurance companies | Metromile, Mile Auto, Allstate Milewise, Nationwide SmartMiles, Geico, Country Financial, Auto-Owners, Progressive, The Hartford, American National, USAA, Root, Travelers |
| Other ways to lower insurance costs | Shop around, bundle policies, paperless billing, improve credit score |
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What You'll Learn
Pay-per-mile insurance
The number of miles you drive annually can affect your commercial insurance rates. Generally, the more you drive, the higher your insurance rates will be. This is because the more time you spend on the road, the higher the chance you'll get into an accident and file a claim. Therefore, insurance companies consider you a higher risk, and your rates will reflect this.
Some pay-per-mile insurance companies also offer mileage caps, where you only pay for the miles up to a certain limit, and any additional miles are free. This can be beneficial if you don't drive a lot but want to take a road trip, for example.
It's important to note that pay-per-mile insurance may not be available in all states, and some insurers may require upfront payment for the policy. Additionally, privacy concerns may arise as insurers collect mileage data through devices installed in the car or mobile apps.
When considering pay-per-mile insurance, it is essential to shop around and compare quotes from different insurers to find the best policy for your needs.
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Low-mileage discounts
The number of miles you drive annually is a factor in determining your car insurance rate. The more you drive, the higher your rate is likely to be. This is because the more you drive, the more likely you are to be involved in an accident and the more wear and tear your vehicle will experience, leading to a higher risk profile.
Insurers consider those who drive less than 12,000 miles a year to be lower than average, and some companies offer low-mileage discounts for those who drive less than 7,000 or 5,000 miles per year. Some insurers offer larger discounts for those who drive fewer than 5,000 miles annually.
Some companies that offer pay-per-mile insurance include:
- Metromile
- Mile Auto
- Allstate Milewise
- Nationwide SmartMiles
- American Family
- Allstate Drivewise
- Esurance
In addition to these, five other companies offer rates cheaper than the national average for low-mileage drivers:
- Geico
- Country Financial
- Auto-Owners
- Progressive
- The Hartford
It's important to note that the definition of "low mileage" varies by state and insurance company. Contact your insurer to learn about its specific mileage breakdowns and discounts.
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Usage-based insurance
Driving less can result in lower insurance rates. This is because insurance companies consider drivers who are on the road less to be at a decreased chance of getting into an accident. Therefore, these drivers are deemed lower-risk and are often rewarded with lower rates.
If you don't drive much, you may want to consider pay-per-mile insurance, also known as usage-based insurance (UBI). This type of insurance allows you to pay for coverage based on how many miles you drive. It is best suited for people who don't drive often, such as those who work from home, attend college, or are retired.
With UBI, your insurance company will track your driving habits and/or mileage and use this data to determine your insurance premium. There are two basic types of usage-based programs: driving-based and mileage-based. Driving-based programs measure driving habits such as 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 of programs rely on telematics to gather information about your driving behavior. This can be done through a plug-in device or a mobile app.
While UBI can lead to lower rates for safe drivers, it's important to note that it doesn't work out that way 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, there are privacy concerns associated with UBI, as insurers collect data on your location and driving behavior.
Before enrolling in a UBI program, it's important to understand the program's rules and how your rates may be affected. Some things to consider include what specific driving behaviors are being measured, whether your rates could go up, and how the program handles trips where you are a passenger and not the driver. It's also important to remember that not every program guarantees a discount.
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Telematics devices
Driving less can often result in cheaper commercial insurance. This is because insurance companies consider those who drive less to be lower-risk, as they have a decreased chance of being involved in an accident.
App-based telematics solutions are another option, using smartphones' built-in sensors and connectivity features to transform ordinary mobile devices into tracking and monitoring tools. While these solutions are more cost-effective, the data they provide is less reliable than other methods.
On-Board Diagnostics (OBD-II) devices are another type of telematics device that plugs into a vehicle's OBD port to capture diagnostic data, including basic location-based tracking and driving behaviour. Some devices offer limited vehicle diagnostics, such as fuel consumption, which is essential for commercial fleets.
By leveraging the data provided by telematics devices, insurers can make informed decisions, optimise underwriting, and stay competitive. Telematics data can also be used to encourage safer driving practices, with some insurers offering rewards and incentives for safe driving behaviours.
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Average mileage
The average number of miles driven per year impacts car insurance rates. The fewer miles you drive, the less likely you are to be involved in an accident, and the lower your insurance rate may be. According to the Federal Highway Administration (FHWA), Americans drive an average of 13,476 miles per year. However, insurance companies have different thresholds for what they consider low mileage. Some companies consider under 12,000 miles per year to be lower than average, while others use a threshold of 10,000 miles or even 7,500 miles.
If you drive less than the average number of miles, you may qualify for low-mileage discounts or pay-per-mile insurance plans. Low-mileage discounts offer a percentage off the cost of a traditional policy, while pay-per-mile insurance determines your rate based on how many miles you drive. Pay-per-mile insurance may be a good option if you truly don't drive regularly, as it can save you up to 40% or more on your insurance costs. However, it's important to note that pay-per-mile insurance may not be available in every state, and it may not be the best option if you drive a lot.
To qualify for low-mileage discounts or pay-per-mile insurance, you will need to provide your insurance company with accurate information about your mileage. Some companies may ask for your estimated annual mileage, while others may require you to install a device in your car or use a smartphone app to track your mileage. It's important to be honest when reporting your mileage, as some insurers may request mileage checks throughout the year.
In addition to low-mileage discounts and pay-per-mile insurance, there are other ways to reduce your car insurance costs. You can shop around and compare quotes from multiple insurance companies, bundle your car insurance with other types of insurance, improve your credit score, or sign up for paperless billing. By combining these strategies with choosing the right type of insurance for your driving habits, you can optimize your savings on car insurance.
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Frequently asked questions
Yes, the less you drive, the lower your insurance rate may be. This is because the more miles you put on your car, the higher your chance of getting into an accident and filing a claim.
Insurance companies use different methods to determine how many miles you drive. Some companies ask for your estimated annual mileage, while others only ask about the length of your commute. Some companies may also use telematics devices or smartphone apps to track your mileage.
Pay-per-mile insurance is a type of insurance where you pay a monthly base rate plus a fee for every mile you drive. This type of insurance is best suited for people who don't drive frequently. Pay-per-mile insurance may be cheaper than traditional insurance if you don't drive regularly, but it may end up being more expensive if you drive a lot.
