Mileage Based Car Insurance: A Good Idea?
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Mobile phone companies rake in millions of dollars each year on overage charges, lovingly known as “overages.”
You buy a specific number of minutes to save a few bucks on your bill, then you unknowingly “go over” and are hit with a bill that costs hundreds more than the “unlimited” plan you didn’t opt for. Ouch!
Can you see where this is going? While a select few benefit from predetermined limits of “usage” for various products, there is always an inherent risk of the unexpected…which leads many to second guess their attempt to save a few bucks by imposing limits on products in which the potential final usage is unknown.
What is Mileage Based Car Insurance?
With “mileage-based insurance,” you estimate the mileage you plan on racking up within your policy term and pay in advance (or by installments) based on that usage amount.
The general idea is that if you don’t drive very much, so won’t pay as much. Perhaps you drive significantly fewer miles than the average individual and don’t want to have to pay for the “base” limit of coverage, which may be 5,000 miles per year.
How Does Mileage Based Insurance Work?
You start by estimating the mileage you would drive within your policy term. This may be six months or 12, depending on the company you choose.
The insurer then calculates your insurance premium by assigning a “per mile” charge for each coverage type you choose. It may look like this (note: you can purchase any coverage available on a typical auto insurance policy).
|COVERAGE||LIMIT||COST PER MILE||MILES PURCHASED||TOTAL COST|
|Bodily Injury Liability||100/300||$.0557||2000||$111.40|
|Property Damage Liability (included in BI Limit)||100|
|Physical DamageComp & Collision||$1,000 deductible||$.0589||2000||$117.80|
Just like the phone bill alluded to earlier, if you go over your predetermined mileage, you are hit with a HUGE over-charge.
How much? You may expect to pay as much as $12.50 or more PER MILE you drive over the 2,000 you purchased (using the example above). The “fee” may be broken down to additional mileage and a “per mile” administrative fee.
So let’s say you drive an additional 100 miles above you the 2,000 you purchased. Your six month policy now costs a whopping $1,590.60! This is the combination of your original policy premium plus the $1,250 “fee” for going over your limit. Having second thoughts yet? We thought so.
Yes, you are required to have your odometer read at policy inception and when each term is up. There is no way to get around an overage charge if you surpass your limit.
What It’s Not
First, we’d like to point out that these are not a “pay as you go car insurance” programs in which you submit your mileage monthly or yearly and are charged accordingly. That might actually be a better way to do it, but that product is not available right now…and probably won’t be any time soon.
Also, this is not the same as the Progressive Snapshot program, where your mileage (and driving habits) is monitored for a period of time BEFORE your premium is adjusted based on the recorded data.
Who Does This Program Work For?
Simply put, nobody…unless you are absolutely sure you will not go over the predetermined mileage limit.
Is it a good idea to “guess” way higher than what you believe you might drive? Guess again. The higher the predetermined mileage, the higher the cost per mile you can expect to pay.
The best bet is to simply purchase a policy from any regular insurer that doesn’t rate “by-the-mile,” but instead rates your vehicle as “limited mileage” or “pleasure use.” Doing so will ensure you get all of the discounts you deserve without the risk of your premium increasing three-fold if you go over a ridiculously low pre-set limit.
Most “normal” insurers will take your word for it, and only second guess you if your mileage seems out-of-whack in the event of a claim. If you are actually a low mileage driver, you’ll save money and have little to worry about.
You will still be charged slightly less than those with longer commutes, but won’t be subject to bankruptcy in the event you have to drive a little more than you expected at any point during the year.