You know you need auto insurance. After all, it’s one of the requirements of car ownership, and (let’s face it) insurance comes in handy for emergencies like fender benders and serious accidents alike. However, the standard way car insurance is sold doesn't really meet your needs.
There is a new player in town that might be just what you need. Available in only a few states including Texas, you can prepay for auto insurance according to the distance you expect to drive each month. That’s right - pay your insurance by the mile.
Traditional insurance tends to offer a range of coverage that fits well with people who drive every day or commute long distances, and it’s priced accordingly. You pay for the coverage no matter how far you drive or how often.
Also, traditional insurance isn’t very flexible. Maybe you drive a lot for a couple of months then drive very little. Changing your insurance to match may not be do-able.
So, how does prepaid care insurance by the mile work? Let’s take a look.
Availability and Eligibility
As we mentioned above, right now this type of insurance is only available in the State of Texas and a few other states, although its popularity is growing. Many of the major insurance providers offer similar programs.
Depending on the provider, you may not need a credit check. And you may not pay different premiums based on gender or age. If you have a teenage boy who only drives to school, this could be a money saver in more ways than one. All you will likely need to do is plug a tracker into the diagnostics port of your car to check on your mileage.
Who’s It For?
Prepaid insurance by the mile is tailor-made for the driver who doesn’t drive far or often.
A caveat: most major carriers also pay attention to how you drive. If you have a tendency to speed, brake hard, or take corners too fast, you may find yourself paying more than you expected. The aptly-named “original” provider of prepaid by-the-mile insurance, MileMeter, stated it only charged for mileage, but competition caused it to cease operations.
Read the policy carefully to see what the company tracks before opting for this type of insurance.
How Does It Work?
You have the best idea of how far you drive each month, and many insurance providers who offer by-the-mile insurance offer flat rates for specific mileage ranges. For example, you may be able to purchase 4,000 to 6,000 miles for a six-month period. If you find you need more miles, you can buy them on an ad hoc basis.
Originally, you were asked to submit a photo of your car’s odometer when you first applied for insurance, and then provide a new photo each time you renewed. That has since been replaced by using a tracking device plugged into your car’s OBDII (diagnostics) port available on most newer models.
An example of a tracker is the Progressive Snapshot device you may have seen in TV commercials. It is able to monitor the number of miles driven and sense the way you drive. For example, many insurance companies ding you for speeding, but not usually until you reach a certain speed, like over 80 miles an hour.
Many monitors also sense when you make sudden stops, swerves, and other actions that can indicate reckless driving. Obviously, you may need to take occasional evasive maneuvers, but if you make a habit of driving this way, you can expect to be charged for it.
Prepayment
A one-time upfront payment is typically required when starting a new policy, which may be shared out over the first few months you are a customer.
For example, the payment may be used to decrease the monthly payments for the first six payments. When it’s time for the seventh payment, you begin paying a slightly higher rate because you have used up your credit from the one-time charge.
The reason for the one-time payment is because the provider has no data yet on how far you typically drive or what your driving habits are. After the first month, the data is used as a benchmark for payment and adjusts accordingly.
After the first few payments, you begin paying your base rate plus any extra fees for additional miles driven the month before over and above those you purchased.
You may be required to set up an autopay account, which will keep you from missing payments. Did you receive a new credit card? No problem, you just go to your account and update your information.
If for some reason you cancel your policy before the sixth payment or six months is up, you may get a refund for the unused portion of the prepayment.
The Benefits of Prepaid Insurance by the Mile
Most of us pay closer attention to certain details if we are being charged for them. In this case, paying by the mile makes drivers aware of how much they are driving. It may surprise you. You might drive more miles than you thought, or you may drive fewer miles (although in Texas traffic it seems like more).
Knowing that you will pay for each mile you drive could encourage you to walk or ride a bike, which is better for your health and the environment. Imagine that! Insurance that helps you lead a healthy and environmentally friendly lifestyle.
The biggest benefit, of course, is the chance to save money by paying only for what you need. Traditional policies tend to make you pay more, paradoxically, when your expected mileage is low. With payment by the mile, the situation is reversed. You pay more for driving farther each month.
If you are on a budget, getting insurance by the mile should appeal to you. If you are an experienced driver with a clean record, you probably have a good idea already how far you drive each month. Urban drivers who leave their car parked and take advantage of public transportation save money to use for a car for longer trips.
Does paying for your insurance by the mile sound more fair than paying for a bundle of coverage that doesn’t match your habits or needs? If you live in Texas or another state that has made it possible to sell insurance by the mile, you might want to ask your current insurance carrier if they offer it. Otherwise, go shopping by searching online for “auto insurance by the mile.”
