Pay Per Mile Car Insurance – How Does it Work?
Pay-per-mile car insurance can be an affordable auto insurance option for certain customers. But it’s not right for everyone. Throughout this article we’ll refer to it using three names: pay per mile, pay-per-mile and PPM. Know that we’re referencing the same type of insurance every time.
Here we’ll explain how pay per mile car insurance works. Before we get further on the topic, realize that a lienholder might not allow this type of car insurance on a financed vehicle. So if you make a car payment, check with your lender before getting a quote. They may ask you to get a traditional auto insurance quote instead.
How Does Pay by Mile Car Insurance Work?
With a PPM car insurance policy, consumers pay a monthly or annual fee, plus a few more cents for every mile they drive. Mileage is reported continually to the insurer via a device planted in the car. Different car insurance companies have different programs, but they all basically function the same way.
Pay per mile insurance providers will require that a special device is placed in the vehicle, to track and report mileage. You cannot remove the device or turn it off. It’s impossible to “cheat” the system or mislead it. It will count every mile this car moves and report it to the insurer. If you’re uncomfortable with this idea of a device registering every mile you drive, PPM might not be the right choice.
Should You Switch to Pay-Per-Mile Car Insurance?
It depends. These policies can potentially save drivers hundreds of dollars per year, as long as your annual mileage is quite low.
It might be perfect for you if:
- You own a car but rarely drive it.
- You have multiple vehicles and use them all. Your mileage is spread over several cars, so the annual mileage on each car is low.
- You put most of your commuting miles on one vehicle, but you own another for pleasure, parades, hauling hay around your property to feed animals, etc.
The bottom line is that PPM car insurance policies are ideal for vehicles that stay home most days.
Is PPM Car Insurance Good for High-Value Antiques or Show Cars?
No. Pay-per-mile car insurance is not usually the best choice for high-value show cars or valuable antiques. Even though these vehicles are considered low-use, their high values mean they should be insured with a specialty auto policy or parade / show car policy.
It might be tempting to save money by purchasing a PPM policy for show cars and antiques because these cars don’t get driven much. However, you would risk depreciation by the insurance company in the case of a loss.
If a garage fire destroys your custom, rebuilt 1955 Chevy hotrod that’s valued at $40,000, a pay per mile policy may only pay the standard blue book value. That might only be a few hundred dollars on a 65 year old car. You’d be taking a loss around $39,000, and you certainly wouldn’t be able to replace that vehicle.
But for a general use vehicle, a PPM policy might be ideal. You can purchase all the usual coverages and policy add-ons to make a robust insurance policy.
What Coverages are Standard?
If you’re considering the switch to pay per mile insurance, know that:
- Standard coverages like collision and comprehensive are available.
- In most states, a consumer could also choose liability coverage only. This is only appropriate if you own the car outright, and won’t be acceptable to a lienholder.
- Many valuable add-ons, like glass coverage, rental car coverage, roadside assistance and towing are available with pay per mile car insurance policies.
How Much Does Pay Per Mile Car Insurance Cost?
Ultimately, your monthly cost for pay per mile car insurance will depend on how much driving you do, your driving history, and any other bundles or discounts.
- Your PPM insurance cost will always include a base rate, plus a few cents for every mile you drive.
- Many PPM insurers offer mileage caps. For instance, if you drive more than 250 miles in a single day, you may need to pay only for the first 250 miles.
- Mileage caps can ease your concern if you’re worried about using the vehicle in emergency travel situations.
You’ll need to get a few quotes to see how much pay per mile insurance will cost you, as an individual.
How do Insurance Companies Create a Base Rate for Pay Per Mile Car Insurance?
All auto insurance companies base their rates on many factors, including:
- Driver age and gender
- Safe driving history
- Zip code and garaging location
- Value of the vehicle
- Use of the vehicle
- Weight of the vehicle
- Annual miles driven
- And other unique factors related to that make and model.
Any safe driver with a good record should be able to get reasonable pay per mile car insurance quotes. Sometimes, you might be able to get discounts for bundling your homeowner’s insurance, renters insurance, or life insurance policies with the PPM policy.
Will Pay Per Mile Car Insurance Work With an Umbrella Policy?
In theory, it should. However, you’ll need to discuss this with your personal umbrella policy provider first.
Umbrella policies offer an additional layer of liability protection. If you were to cause a significant amount of damage – say you lost control of the car and crashed into an ambulance, injuring several people and wrecking the expensive ambulance – a personal umbrella policy would cover your liability beyond what’s covered by the car insurance.
Personal umbrella policies usually require that you maintain the highest level of liability coverage available on your auto policy, but check with them to be sure of any exact amounts.
Ultimately, a pay per mile car insurance policy can be a great choice for certain situations. Low-risk, low-mileage drivers might find they save hundreds of dollars every year with them. High-risk drivers, high-mileage drivers, or owners of expensive specialty vehicles may find these policies too expensive or inadequate for their insurance needs.