People who truly don’t drive a lot can potentially save some money with pay by mile car insurance, but for me personally, the cons of this type of insurance outweigh the pros.
Whether it’s Allstate’s Milewise, Progressive’s Snapshot, LibertyMutual’s ByMile, or Nationwide’s SmartMiles, these programs have a fair share of flaws ranging from unfair rates to privacy concerns, and that’s what we’ll be talking about in this blog post.
Disadvantages of Pay-By-Mile Car Insurance
Just so we’re all on the same page, pay-by-mile car insurance is just what it sounds like: instead of paying a fixed rate for car insurance, you’ll pay for each mile you drive.
1. Lack of Privacy
The insurance companies track your driving by requiring you to install a small tracking computer into your car.
This computer tracks your location, speed, how hard you brake, when you drive, and so many other telemetrics.
This is the first downside of pay-by-mile car insurance and that is privacy.
Does your insurance company really need to know that you took a trip to the liquor store at 11pm on Saturday night?
Many of these insurance companies make it very clear in their policy details that late-night driving for example will adversely affect your rates.
I read through the privacy policies for each of these programs, and most of them keep your data indefinitely, which means that there will be a permanent record of your driving habits uploaded to the cloud forever.
2. Questionable Security
Hand in hand with privacy is security, and that is another concern when you give an insurance company a way to monitor your diving. If insurance companies can track your car’s GPS location, then so can a hacker, and just like everything else that touches the internet, nothing is ever truly secure.
3. Unfair Rates
Now I know that most people aren’t too concerned with hackers, but what you’re probably concerned with is getting a cheaper rate. Like I said, the good news is that you will probably get a cheaper rate with pay-by-mile insurance if you do indeed drive your car less.
I got two quotes from Liberty Mutual for my car. The one on the left is a traditional fixed rate policy, and the one on the right is a pay-per-mile policy which assumes I drive 6,000 miles a year.
Because my brain is super analytical, I asked my insurance agent to also give me quotes assuming I drive 2,000 miles per year, 3,000 miles per year, 4,000 miles per year, and so on all the way up to 12,000 miles per year.
As you can see from this chart, the pay-by-mile premium rate increases significantly after driving 10,000 miles per year, and somewhere along here is where the traditional fixed-rate policy lies.
What this means for you is that if you’re driving over 10,000 miles per year, pay-by-mile car insurance doesn’t make sense, at least with Liberty Mutual.
But let’s say you do drive less than 10,000 miles per year. Let’s say you drive 2,000 miles per year.
Based on the information that Liberty Mutual quoted me, the rate per mile is much higher assuming you drive 2000 miles in a year than the rate per mile for someone who drives 8,000 miles in a year, and that is the third downside to this type of car insurance.
I strongly feel that every mile you drive should cost the same, regardless of how much you drive.
Why should someone who drives 2,000 miles per year pay nearly 3 cents per mile when someone else who drives 8000 miles per year pays closer to 1 cent per mile?
4. Expensive Base Rate
Similarly, even if you don’t drive your car for an entire week, you are still paying a daily base rate each day during that week.
Now I understand that you still need coverage for your car when you’re not driving for theft and natural disasters, but considering the cost of my fixed-rate quote from Liberty Mutual is composed of 80% collision coverage where the other 20% is comprehensive coverage (like when the vehicle is not in motion), I would expect to see a much smaller daily rate for pay-by-mile car insurance plans.
5. Unclear Policy Details
Up until this point, we have only briefly touched on the fact that some of these pay-by-mile plans give you a cheaper rate for good driving.
But what exactly is good driving?
According to numerous studies by psychologists, something like 80% of us think we are above average drivers.
But according to math, that’s simply not possible.
This is called illusory superiority bias, and just because you might think you’re a good driver, your insurance company might not also think so.
I ended up sticking with a traditional car insurance policy, but I’m curious what your thoughts are. Do you have or plan to get pay-by-mile car insurance? Let me know in the comments below.