How Mileage Affects Your Car Insurance Rates
More Americans now work from the comfort of their homes. Instead of spending long hours in heavy commuter traffic, they’re crouched in front of computers, hosting Zoom video meetings with their co-workers. Since they’re no longer commuting, some people believe they deserve a break on their insurance premium rates, since they don’t drive as much. But can a person receive a cheaper rate if they drive fewer miles on the road? And what discounts are available for low-mileage drivers? You’ll learn how mileage affects your insurance rates below.
Do Insurance Companies Use Mileage to Determine Your Premium Rates?
Insurers companies don’t always rely on mileage to calculate their premiums. They use several variables to calculate their premium rates, including a driver’s annual mileage and home state. They also base insurance premiums on the risks that drivers face on the road. For instance, an insurance company may charge higher rates if a person spends more time commuting to work because their extended travel time places them at an increased risk of having accidents. Other insurers may offer rates to people who drive less because they may have fewer traffic incidents. Your residence is another variable that your insurer may take into consideration because different states have regulations that can increase or lower rates.
Insurance regulations will differ depending on the state where you reside. The average rate for low-mileage car insurance was $1,663, according to a study conducted by U.S. News and World Report. A low mileage motorist in California may pay lower premiums because regulations like Proposition 103, a state ballot measure, mandates that insurers consider annual mileage estimates when calculating premiums. It limits factors that California’s auto insurers can use in setting rates, including a driver’s safety record, years of driving experience, and mileage driven. Since the Golden State has so many drivers on the road, they charge high-mileage drivers more expensive rates.
California’s residents pay a rate of $1,489 if they are driving less than 6,000 miles compared to New Jersey residents who pay $1,624. The average Golden State resident who is a low-mileage driver can pay almost $175 less than other motorists nationwide. In other areas, like North Carolina, mileage doesn’t increase insurance rates since the state is mostly rural, and there are fewer drivers on its roads.
The Tar Heel state also has an insurance formula that prevents companies from spiking rates. Individual companies operating within the state must file rate requests with the North Carolina Rate Bureau. This organization then proposes a statewide base premium on behalf of these companies. The NCRB also places a price cap on how much money insurance companies can charge based on mileage. They don’t place limits on how much companies can discount rates for motorists that don’t drive much.
Which States Do Motorists See the Highest (or Lowest) Savings Based on Mileage?
According to U.S. News and World Report, there are five states where people save the most for low-mileage drivers:
- California - 16.5 percent
- Washington, D.C. – 11.1 percent
- Alaska – 11 percent
- Alabama – 9.8 percent
- Hawaii – 9.7 percent
There are five states where mileage has little effect on insurance rates. These include:
- North Carolina – 0 percent
- Utah – 1.2 percent
- Texas – 2.5 percent
- Connecticut - 2.8 percent
- Rhode Island – 3 percent
When Should You Enroll in a Mileage-Based Discount Program?
Insurance companies don't offer low-mileage car insurance policies to customers. Instead, they have coverage that provides discounted rates based on the actual miles you drive. Others offer end-of-the-year discounts for low-mileage motorists. You can still get a cheaper rate even if you're not sure you qualify for these rates. These discounts are generally available to:
- People who live close to their place of employment.
- Individuals that operate a home-based business.
- Stay-at-home parents.
- Retired seniors who don’t have 9-to-5 jobs.
- Secondary cars used that are not the primary vehicle, and only used for errands.
- People who carpool to work several times a week.
- People who live close to work.
Two Types of Mileage-Based Discounts
Auto insurance companies generally don’t provide low-mileage or usage-based policies to new customers. Eligibility for these incentive programs requires motorists to use a telematics app that tracks their driving behavior and mileage. Insurance companies generally offer two kinds of discounts:
Low-mileage discounts – An insurer may give reduced premiums to drivers whose annual mileage falls beneath a certain limit. These are tiny deductions given at the end of the year for people who are below a certain number of miles.
Usage-based insurance (UBI) – Insurance companies may offer these savings to their consumers in exchange for safer driving habits. They’ll place a monitor in your vehicle to track your driving behavior. This insurance is not the same as low-mileage discounts, which are different.
What Is a Low-Mileage Discount?
Some traditional auto insurance companies offer low-mileage discounts to their customers. It’s a small deduction that insurers give at the end-of-the-year to individuals that log under a specific amount of miles.
According to the U.S. Department of Transportation, the average driver less than 13,476 miles every year. It comes out to an average of 1,125 miles per month.
Policyholders generally underestimate (or overestimate) how much they drive annually, so insurance companies base their premium rates on the standard national average, which is 12,000 miles. Insurance companies have different opinions about who qualifies as a low mileage driver. Most define low-mileage drivers as motorists that drive between 7,500 and 15,000 miles, on average, every year. If your annual travel doesn’t exceed 15,000 miles, you should consider asking your insurer for a low-mileage discount.
Low-Mileage Discount Programs
There are a variety of low-mileage insurance options for drivers. Here are several ones that are currently available on the market.
The United Service Automobile Association (USAA) has an annual low-mileage discount for motorists age 29 and older.
State Farm, American Family, and the Farm Bureau Insurance Companies offer a discount for people that drive less than 7,500 miles annually.
The Commerce Institute has an Annual Mileage Discount for qualified drivers based on the number of miles you drive.
Other insurance companies do not advertise their low-mileage discount for drivers, but you may still get one by driving less. These include Farmers Insurance, GEICO, Nationwide and Progressive. Do you need help finding a low-mileage discount? You can use SmartFinancial’s transparent insurance technology platform to find one. Just complete our short application after entering your zip code, and you’ll receive quotes from different carriers within your local area.
What Are Usage-Based Discounts and Insurance Programs?
Usage-based insurance programs generally provide cheaper, customized premiums based upon your driving behavior. The car insurance company will review your habits to see if you qualify for cheaper premium rates. If so, you can receive discounts up to 50 percent.
How does it work? The insurance company collects information about your driving habits by using a telematics device that attaches to your vehicle. Others use telematics apps you can download to your phone.
It monitors and evaluates the following behaviors, such as:
- The number of miles you drive
- Your average speed
- How hard you brake on the road
- Distracted driving
- Adhering to the speed limit
- The time of day (or night) you drive
Infrequent and short-distance driving can also lower your car insurance rates, but these rates are not guaranteed.
Are you searching for a policy that charges your premiums based upon how much you drive? Consider buying a usage-based insurance policy called pay-as-you-drive (PAYD). These policies offer both comprehensive and collision coverage, but the insurance company will base your premiums on the number of miles you drive. The fewer miles you drive, the lower your final premium costs will be. Other names for this insurance include pay-per-mile (PPM), pay-as-you-go, pay-how-you-drive (PHYD), and mile-based auto insurance. Many insurers base fees on the type of vehicle used, measured against the time, distance, place of residence and behavior of a driver. There are several pay-as-you-drive programs on the market. They include:
Allstate’s Milewise – This program tracks your mileage using a mobile app installed in your car’s diagnostic port. Customers pay a daily rate and a second pay-as-you-drive rate. The company says it’s designed for stay-at-home parents, commuters, retirees and people who work from home.
Nationwide’s SmartMiles – This program charges a base rate and a variable rate (cost per mile) that drivers pay as they based on the number of miles you drive. It counts the first 250 miles you drive per day.
Usage-Based Insurance Programs on the Market
User-based insurance programs have increased over the last decade. Here are a few popular ones available on the market:
American Family’s Know Your Drive – The usage-based car insurance program can save drivers up to 20 percent. When you enroll, you’ll automatically receive a 5 percent discount.
Allstate’s Drivewise – Their telematics device tracks how far you drive every day. You can save between 10 and 30 percent on your premiums and earn cash back every six months for your safe driving.
Esurance’s DriveSense - This mobile app allows drivers to earn a personalized discount for being responsible on the road. The program can save motorists up to 8 percent off of their policy.
GEICO’s DriveEasy – This app looks for behaviors including your phone use, hard braking, and gives drivers a score based on their behaviors during a trip. It allows you to check back to see if your score improves over time. It can save policyholders up to 20 percent on their policies.
Liberty Mutual’s RightTrack - Users can download this telematics app and place a sticker on their windshield. The RightTrack app links to it. These features allow the company to monitor your driving, including how many miles you drive. It uses this data to get users to save up to 30 percent.
Nationwide’s SmartRide – This device tracks nighttime driving, acceleration, hard braking and the miles you drive. You can earn a discount up to 30 percent during the life of your auto policy.
Progressive’s Snapshot – Drivers receive an automatic discount and a personalized insurance rate based on their safety record. The average discount is $145.
Root Insurance – Their app promises to save drivers up to 52 percent based on their driving history.
State Farm’s Drive Safe & Save – This app connects with a Bluetooth beacon that the company sends to you after your enrollment. It tracks hard braking, fast cornering, speeding, and quick acceleration. Drivers can save up to 30 percent with the program.
Could Low-Mileage Program Participation Actually Raise My Rates?
There are currently no long-term industry studies on how insurers use telemetric information to determine car insurance rates. So far, companies claim they only use analytic data to calculate their discounts and not the insurance rates for their customers.
How Can I Lower my Premium if I’m a High-Mileage Driver?
Unfortunately, a few insurance companies may raise premiums on motorists who drive a lot. Some people may try to fudge their mileage numbers to get a lower rate. Policyholders can get into trouble if they try to change their mileage and usage numbers.
For instance, a new policyholder lies about annual mileage, saying she only drives an average of 6,000 miles annually. The person says this, so she can receive a cheaper premium rate. The insurance company records the odometer reading at 12,485. Six months later, this person gets into a car accident. The insurance representative returns and records an odometer reading of 29,485, far higher than the 6,000 she claimed she drives. The insurer decides to rescind your discount and charge you the original rate. You don’t always have to have low mileage to save money on your premiums. If you drive more than 15,000 miles every year, there are other ways you can lower your car insurance rates. You can do the following the lower your rates if you’re a high-mileage driver.
Avoid getting speeding tickets and traffic tickets.
Raise your deductible on your coverage.
Get several quotes when applying for insurance.
If you’re searching for a fantastic mileage-based program, you can trust SmartFinancial to simplify the process. Our transparent insurance platform makes it easy to find a high-quality auto insurance carrier. You won’t have to spend hours scrolling through sites from different carriers. We simplify the process for you. You’ll only need to fill out a short application, and we’ll provide you with multiple quotes from different insurance carriers. You’ll have the option to buy policies online, over the phone, or in person. Let us do all the work for you. Get started today by filling out our quick, five-minute application online.
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