Pay-per-mile car insurance
This is a great idea that's ahead of its time.
At first glance, pay-by-the-mile auto insurance seems like a great idea: Drive a lot, pay more. Drive less and save. But what seems like a great idea has had difficulty gaining traction.
For a variety of reasons, including technology, regulations and marketing, pay-as-you-go auto insurance has stalled in all but one state.
And if you are thinking that California is the forward-thinking jurisdiction, think again. The winner here is Texas, but more about that in a minute.
There are several potential benefits of pay-by-the-mile auto insurance. According to one study (.pdf file) by the Federal Highway Administration, pay-as-you-drive-and-you-save, or PAYDAYS insurance as it's sometimes called, would reduce miles driven by 10%. How? People would factor in the cost of insurance before getting behind the wheel. As it stands today, most insurance policies are based on fixed premiums regardless of how much you drive.
By reducing miles driven, we lessen our impact on the environment, reduce our dependence on foreign oil and, important to Dough Roller readers, we save money. We save money not only by reducing the cost of auto insurance, but also be reducing how much we spend on gas and the wear and tear on our vehicles. With respect to car insurance, this Brookings Institute study concluded that two-thirds of households would save $270 a year with pay-as-you-drive auto insurance.
By-the-mile auto insurance is a good idea. So why isn't it more widely available? Back in 2008, a Dallas company began offering car insurance by the mile. Called MileMeter, the company offers insurance for as little as 2 cents per mile. When the company launched, it was available in Texas thanks to a state law passed in 2001, which MileMeter explains:
In 2001, the Texas House passed Texas HB 45, the cents-per-mile choice law, authorizing insurance companies to offer a cents-per-mile alternative to their dollars-per-year prices. Texas was the first state to change its insurance laws; others are now considering similar changes.
The way MileMeter works is pretty simple. You can get a quote online. Once approved, you buy 1,000 to 6,000 miles every six months. If you go over your miles, you can log in to your account and buy extra miles. And if you don't use all your miles, you can credit them to your next purchase of miles, subject to MileMeter's minimum earned premium of 1,000 miles per six months.
- Quiz: Test your driving skills
How does MileMeter track your miles? You submit a photo of your odometer that includes your driver's license in the photo. Low tech, to be sure, but it avoids privacy concerns some have with technology that uses GPS and the like to track how far you've driven.
MileMeter launched back in 2008 in Texas only, which raises the question, where is it available today? Texas.
- Bing: State car insurance laws
Unfortunately, most state laws prohibit this type of insurance. For one thing, some consumer-protection laws require insurance companies to state the premium up front. With pay by the mile, the actual premium can't be known for any sixth-month period until the miles driven are known. While this seems like a silly reason to prevent pay-as-you-go insurance (and it is a silly reason), it's reality in most states.
If you don't live in Texas, what are your options? Many insurance carriers offer low-mileage discounts. The problem is that these discounts typically don't save you a lot of money. Of course, take advantage of them if you qualify, but we are looking for some more substantial savings. And there are two options to consider.
- OnStar subscribers. If you drive fewer than 15,000 miles per year, have OnStar, have auto insurance from GMAC Insurance, Liberty Mutual or High Point Auto Insurance, and don't live in one of the excluded states, you may qualify for a low-mileage discount of up to 50% or more. So, why all the restrictions? Why only three insurance carriers? And why do some states prohibit these discounts? All very good questions without very good answers. Still, if you qualify, the OnStar low mileage discount is definitely worth checking out.
- Progressive's MyRate program. A few years back, Progressive came out with the MyRate program. Progressive gives you a simple device to plug into your car, which wirelessly and securely sends Progressive information about when, how much, and how you drive your car. Based on this data, Progressive can offer discounts of up to 25%. As you would suspect, MyRate is not available in all states.
You can get an online quote from multiple insurance carriers, including Progressive, from insurance.com.
I Discovered Milemeter about 6 months ago. I own three cars and drive less then 4000 miles per year. I have been getting raped by insurance companies for most of my life. Now I pay for the miles I drive in each car. The best part? If you don't use your miles you get a pro-rated rebate when you renew.
I have not had to file a claim yet but I expect they are about the same as other insurance companies or they wouldn't still be in business.
They do charge more per mile than a standard policy so if you drive more than a few thousand miles a year it may not be that practical.
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