Does Mileage Affect Your Car Insurance Rates?

Car insurance premiums are influenced by a variety of factors, and the number of miles a vehicle is driven is a significant determinant. Actuaries, who assess risk for insurance companies, consistently link higher mileage to an increased likelihood of claims. Understanding this relationship can help policyholders manage their insurance costs.

The Core Relationship Between Mileage and Risk

The fundamental reason mileage affects car insurance rates stems from the direct correlation between time spent on the road and exposure to potential incidents. A vehicle driven more frequently and over greater distances inherently faces more opportunities for accidents, mechanical breakdowns, or other covered events. This increased exposure translates into a higher statistical probability of an insurer needing to pay out a claim.

Insurance companies use actuarial data to project risk. This data consistently shows that vehicles with higher annual mileage tend to generate more claims. For instance, a vehicle driven less than 3,000 miles annually might be involved in significantly fewer claims compared to one driven 20,000 miles or more. More miles also contribute to increased wear and tear on a vehicle, which can lead to higher repair costs over time, further justifying higher premiums.

How Insurers Factor In Mileage

Insurance companies employ different methods to incorporate mileage into their pricing models, ranging from traditional estimates to advanced technological tracking. Historically, insurers have relied on policyholders to provide an estimated annual mileage when applying for or renewing a policy. This estimate then places the driver into specific “mileage bands” or “brackets,” such as low, average, or high mileage, which directly influence the premium charged.

A more contemporary approach involves Usage-Based Insurance (UBI) or telematics programs, where technology tracks actual driving behavior, including precise mileage. These programs often use devices that plug into a vehicle’s diagnostic port, or smartphone applications, to collect data. “Pay-per-mile” policies are a specific type of UBI where premiums are directly tied to the miles driven, typically combining a low base rate with a per-mile charge. Other UBI programs, sometimes called “pay-as-you-drive” or “pay-how-you-drive,” monitor not just mileage but also habits like braking, acceleration, and time of day for a more personalized premium calculation.

Reporting Mileage and Potential Savings

Accurately reporting mileage is important for policyholders, whether providing an initial estimate or participating in a telematics program. Insurers may verify mileage through various means, including odometer readings at renewal or during a claim, or by utilizing third-party databases. Intentional underreporting of mileage can lead to significant issues, including policy cancellation, non-renewal, or even accusations of fraud, as it distorts the insurer’s risk assessment.

Drivers with lower-than-average mileage often qualify for specific discounts, as they present a reduced risk of accidents. Many insurers consider driving less than 7,500 to 10,000 miles annually as low mileage, with greater savings available for those driving even fewer miles. These low-mileage discounts can range from 5% to 30% of the premium, depending on the insurer and the specific mileage threshold. If driving habits change significantly, such as due to working from home or increased use of public transportation, informing the insurer can lead to a premium adjustment.