How Low Mileage Affects Your Insurance Premiums

Driving less can mean paying less for car insurance. Many insurance companies offer discounts for low-mileage drivers, and some have even introduced pay-per-mile insurance programs. However, the definition of low mileage varies across companies, and some standard policies may not account for extra mileage from vacations and holidays. It's important to accurately report your car usage and mileage to take advantage of any potential savings.

Pay-per-mile insurance

Low-mileage drivers can pay less for car insurance, but they may need to look beyond standard car insurance policies to find real discounts. Insurance companies have their own criteria for how mileage affects car insurance rates and the number of miles they consider low. For example, according to KBB, insurers typically offer insurance discounts for low-mileage drivers who log less than 7,000 miles annually. The Federal Highway Administration's 2022 report states that the average American drives 13,476 miles per year.

While the pay-per-mile insurance option has its benefits, there are some drawbacks to consider. One of the cons is limited availability. Drivers in some states might not be able to buy pay-per-mile car insurance. For example, Nationwide's SmartMiles pay-per-mile coverage isn't available in Alaska, Hawaii, Louisiana, North Carolina, New York, and Oklahoma. Another con is the possibility of being required to pay your premium upfront. In some cases, an insurer might require an upfront payment for pay-per-mile insurance instead of monthly payments. Lastly, privacy concerns may arise as an insurer might collect your mileage data through a device installed in your car or through a mobile app.

Low-mileage discounts

Insurers typically offer discounts for low-mileage drivers who drive less than 7,000 miles a year. However, the number of miles considered "low" varies across companies. For example, some insurers provide discounts for annual mileage totals under 7,500 miles.

Drivers can benefit from low-mileage discounts if they are remote workers, urban dwellers who use ridesharing services, stay-at-home parents, or retirees. If you rarely drive your car and don't use it for commuting or regular errands, your insurer may classify your car as being used for "pleasure", which could qualify you for a lower rate.

Pay-per-mile insurance is different from a low-mileage discount. While pay-per-mile insurance determines your rate based on how far you drive, a low-mileage discount offers a percentage off the cost of a traditional policy. Mile Auto and Metromile specialize in pay-per-mile insurance, while Allstate's pay-per-mile insurance program starts with a base rate with additional charges for extra miles driven.

Mileage-based insurance

While the exact mileage that qualifies someone for low-mileage insurance varies among insurance companies, it is generally considered to be under 7,000 to 7,500 miles per year. This is significantly lower than the average American's annual mileage of 13,476 miles, according to the Federal Highway Administration's 2022 report.

Pay-per-mile insurance can be a good option for those who consistently log low mileage, as it may be cheaper than a traditional auto policy. However, it is important to note that this type of insurance may not account for extra mileage from vacations and holidays, and there is seldom a mileage cap. As such, exceeding your expected mileage can result in higher costs. Additionally, some insurance companies may revoke any low-mileage discounts if you exceed their stated mileage limit.

Reporting mileage

When applying for car insurance, insurers will ask for an estimated annual mileage. While it may be tempting to underreport to secure a lower rate, this is ill-advised as some insurers will verify your mileage during the year. Some insurers may also require proof of your mileage in the form of an odometer reading or a photo of your odometer.

Some insurers, including Progressive, only ask about the length of your commute, while others ask for your estimated annual mileage. Depending on your driving habits, this method may not account for extra mileage from vacations and holidays, so the estimate could be low. However, this method can be helpful if your mileage has recently changed (e.g., you've started working from home) and you want to ensure the estimate is closer to your current habits.

If you consistently log low mileage, pay-per-mile insurance may be cheaper than a traditional auto policy. Pay-per-mile insurance is different from a low-mileage discount offered by some auto insurers. A low-mileage discount offers a percentage off the cost of a traditional policy, while pay-per-mile car insurance determines your rate based on how far you drive. With a pay-per-mile program, there is seldom a mileage cap, but as you pay per mile driven, you won't save as much money if you exceed your mileage expectations. If you are enrolled in a low-mileage discount, your insurer would likely revoke that discount if you exceed the mileage limit stated within their terms.

Some insurance companies, like Root, use your driving habits to determine premiums instead of relying on credit scores and age. If you're a low-mileage driver, this might be a good option. Allstate's pay-per-mile insurance program is similar, starting with a base rate upon which charges are added for additional miles driven. Mile Auto is another pay-per-mile insurance company that does not require a tracking component such as an app or plug-in device. Instead, drivers must snap a photo of their odometer once a month to determine the amount driven.

Privacy concerns

Usage-based insurance, also known as telematics, often involves tracking a driver's location and gathering personal data through a device installed in the vehicle or a smartphone app. This allows insurance companies to monitor driving habits and offer discounts to those who drive less or demonstrate safe driving practices. However, not all drivers are comfortable with this level of data collection and the potential privacy implications.

Some insurance companies, like Mile Auto, address privacy concerns by not requiring a tracking component such as an app or plug-in device. Instead, they ask drivers to submit odometer readings or photos to determine their mileage. This option provides a less intrusive method of data collection while still allowing drivers to take advantage of low-mileage insurance rates.

Traditional insurance companies that offer low-mileage discounts without requiring extensive data collection may be a better fit for those with privacy concerns. These companies often rely on self-reported mileage estimates or odometer readings to determine eligibility for discounts, rather than actively tracking a driver's location and behaviour.

It is important to note that the level of privacy protection also depends on state legislation. For example, states like California and New York have enacted laws requiring insurers to disclose their tracking practices and devices, providing consumers with more transparency and control over their data.

Frequently asked questions