CEE’s Eric Gonzales Explains Pay-per-mile Car Insurance on WalletHub

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Associate Professor Eric Gonzales of the Civil and Environmental Engineering (CEE) Department at UMass Amherst explained many of the benefits and disadvantages of so-called “pay-per-mile car insurance” while serving as a transportation expert in a long feature in WalletHub, a popular personal-finance website. Pay-per-mile insurance is a type of car-insurance policy that charges a premium based on a customer’s actual mileage. With pay-per-mile car insurance, customers pay a daily or monthly base rate, plus a per-mile fee of about two-to-10 cents.

As Gonzales explained in the WalletHub spread, “Pay-per-mile car insurance would benefit individuals who do not drive many miles per year. Although there are some risks associated with car ownership that are independent of driving, such as theft or damage while parked, most of the risk is associated with driving in some proportion to the distance traveled.”

According to the WalletHub feature, “Pay-per-mile insurance covers the same types of costs as traditional car-insurance policies, such as the cost to repair others’ property and the cost of others’ medical expenses if you were at fault for an accident. Like a traditional car-insurance policy, pay-per-mile insurance will include your state’s minimum coverage requirements, and you can choose add-ons such as collision and comprehensive insurance to cover repair and replacement costs for your vehicle.”

WalletHub added that “In addition, some pay-per-mile insurance policies often include features that may help you save more on your premiums, such as feedback on your driving habits and tips on ways to improve.”

Gonzales – who does refined research on public transportation systems, demand-responsive transportation (e.g., paratransit, taxis, and transportation network companies), and freight and logistics systems – was on a “panel of experts” in the WalletHub feature. 

According to Gonzales, “A pay-per-mile insurance plan would be most attractive to anyone who owns a car but uses it infrequently.”

Why? As Gonzales explained in WalletHub, “While insurance premiums vary significantly based on driving record, car value, and location, most insurance companies base their risk calculations on the average annual miles driven per year, which, according to FHWA, was 13,476 miles/driver in 2022. Anyone driving less than this could benefit from a system that allows them to report that they travel fewer miles on the roads, thereby exposing themselves to fewer crash risks.”

Gonzales observed that pay-per-mile insurance is good for consumers by allowing those who drive less to save money. In addition, “It also changes car insurance from a fixed cost associated with car ownership to an incremental cost associated with car use,” he said in the WalletHub feature. “From a societal and environmental perspective, this is a good thing because it encourages customers to consider not driving for trips where they could easily walk, bike, or use transit.” 

Gonzales concluded that “One of the biggest challenges for reducing traffic congestion and energy consumption associated with driving is that, once someone has paid to purchase, register, and insure a vehicle, the incremental cost of using their car is small. This makes it attractive to use for all trips. A pay-per-mile insurance plan allows a customer to save money on the fixed cost of owning a vehicle and then continue to save money by using alternative modes of transportation.”

The WalletHub feature and its panel of experts, including Gonzales, offered a wealth of additional useful information about pay-per-mile insurance, as you can see for yourself by clicking on the link in the first paragraph. (June 2024)