Three Things You Should Know About Pay-Per-Mile Insurance

There are a number of auto-insurance products on the market to fit just about any need; so many, in fact, it can be difficult to determine which one is right for you. If your primary concern is keeping your insurance premiums as low as possible, then you may want to consider opting for pay-per-mile insurance. This type of insurance bases your rates on the number of miles you drive each billing cycle, similar to contracts with cell-phone companies who charge based on the number of minutes you use. Here are three things you should know about this option to help you figure out whether this is a good fit for you.

Low-Usage Drivers Are Rewarded the Most

It goes without saying that the fewer miles you drive on a pay-per-mile plan, the more money you save. However, the savings you enjoy can be quite significant. For those who drive fewer than 5,000 miles per year, you could save up to 50 percent on your auto-insurance premiums.

It's important to realize, though, that 5,000 miles per year is around 416 miles per month. People who commute to work on a daily basis, take the kids the school, or use their vehicles with any regularity may not do well with this type of plan. If you primarily use other forms of transportation (e.g., bicycle, bus) and only drive your vehicle to run errands every so often, then you may benefit the most from this type of policy.

You'll Need to Install a Tracking Device

Companies calculate the number of miles you drive in a couple of different ways. Some let you self-report your odometer reading every month and bill you based on the difference between the numbers from month to month.

However, most companies require customers to install tracking devices that monitor how many miles they drive each time they get into their vehicles. These devices are typically outfitted with software that may record—among other things—your location via GPS technology, your rate of speed, and how often you use your breaks.

If you're concerned about privacy, you may want to carefully consider whether you want to use these devices. The auto-insurance companies generally only use them for their own purposes and do not share the information with anyone else. However, the data recorded on the device can be subpoenaed and used against you in court. For instance, if you cause an accident, a plaintiff who is suing you can request the records from the insurance company and use them to prove how fast you were driving.

At the same time, though, these devices may be lifesavers. They can make it easier for helpers to locate you if you get into an accident or break down in the middle of nowhere. It's important that you consider all the benefits and risks before making a final decision.

Your Coverage Is Still Just Like Any Other Insurance Coverage

Although pay-per-mile coverage offers a different type of billing scheme, it's still just like any other type of insurance out there. Safe drivers with relatively clean driving records get the best per-mile rates while higher-risk drivers pay more. For instance, people with DUIs or other driving violations can still expect to pay higher premiums even if they aren't driving as much.

Still, this type of plan could be a good option for teens, whom insurance companies consider to be high risk. Rather than increase your premiums by adding your child to your current insurance policy, getting your teen a pay-per-mile policy can help you save money in the long run.

For more information about this or other auto-insurance products, contact an insurance agent.