If you drive only occasionally, you may wonder if a standard car insurance policy is a waste of money. In most cases, it isn’t because car insurance is required in all US states except New Hampshire and Virginia.

But if you’re a low-mileage driver, it’s worth exploring pay-per-mile car insurance as an alternative to a traditional policy that can lower the cost of your auto coverage.

Here’s how pay-per-mile coverage works, the pros and cons to be aware of, and whether it’s worth it to switch.

Understanding pay-per-mile insurance

Pay-per-mile auto insurance works differently than traditional auto insurance. Instead of paying a set rate based on your location, vehicle, driving history, and other factors, you pay a base rate and a per-mile rate. Your monthly base rate is determined by your demographic information and driving history, and it stays the same. However, your per-mile rate may fluctuate depending on the number of miles you drive each month.

If you’re a low-mileage driver who works from home, commutes a short distance or frequently relies on public transit, opting for pay-per-mile coverage could save you money. It can also be an attractive option for college students or retirees. But you’ll generally have to drive less than 10,000 to 12,000 miles annually to save on car insurance costs.

Pay-per-mile coverage options vary by insurer, but many companies offer both liability-only and full coverage policies. Popular pay-per-mile options include these carriers:

• Metromile

• Mile Auto

• Nationwide SmartMiles

• Allstate Milewise

Pros of pay-per-mile insurance

• Cost savings: The biggest benefit of pay-per-mile insurance programs is the potential savings compared to a traditional car insurance policy. Low-mileage drivers could save a significant sum on premiums.

• Flexible coverage: With a standard policy, you’ll pay the same monthly or yearly auto insurance rate. But pay-per-mile coverage is more flexible, and your rate could be substantially lower if you drive less in a certain month.

• Potential discounts: Certain auto insurers offer discounts for those with pay-per-mile policies. For instance, you may be able to get a safe driving discount if you consistently follow the rules of the road.

Cons of pay-per-mile insurance

• Limited availability: Pay-per-mile auto coverage isn’t available in all states, and availability may vary by insurer. Likewise, your car may not be compatible with the telematics devices many insurers require for pay-per-mile coverage.

• Not for high-mileage drivers: If you drive more than 10,000 to 12,000 miles each year, pay-per-mile auto insurance will likely be more costly than a standard auto policy.

• Privacy concerns: Pay-per-mile insurers typically require you to add a telematics device to your car to track your mileage and driving habits, including your speed, miles, time of day, driving events, and even your location. Not everyone wants their car insurance company tracking them that closely.

• Coverage limits: While some insurers may have a long-distance road trip exception for pay-per-mile policies, this isn’t always the case. If you take road trips occasionally, read the fine print before getting pay-per-mile coverage.

Read more: These are the minimum car insurance requirements in all 50 U.S. states

How pay-per-mile car insurance works

Typically, you’ll need to install and use a telematics device in your car to track your mileage and driving behaviors if you opt for pay-per-mile insurance. These small devices often plug into your car’s OBD-II port under the steering wheel. However, some insurers may allow you to take monthly photos of your odometer or download their mobile app for tracking as an alternative.

Once you’re up and running with tracking, you can drive as you normally would, and your insurer will charge you a fixed base rate and a variable, usage-based mileage rate each month. So let’s say you pay a $35 base rate and a $0.06 per-mile rate in a given month. If you drive 135 miles that month, your insurance costs would be as follows:

$35 + ($0.06 x 135) = $43.10

Remember that if you drive a lot in a given month, your mileage rate may increase depending on your car insurance company. Ensure you familiarize yourself with rate structures before trading a standard insurance policy for a pay-per-mile program.

Is pay-per-mile insurance worth it?

Pay-per-mile insurance can be worthwhile for certain drivers to save on car insurance rates. But there are some important things to consider. If you’re considering switching to pay-per-mile coverage, determine if this coverage is available in your area and which insurers offer it.

You’ll also want to evaluate your overall driving habits and track your mileage to determine if pay-per-mileage makes more sense than a standard auto policy. Consider whether the amount you drive changes month to month. If you find it does make sense, estimate potential cost savings by looking at your current policy and getting car insurance quotes from different providers.

Finally, you’ll want to consider which coverage options you want. For instance, do you drive an older, high-mileage car? If so, a liability-only policy may make sense. If your car is newer, a full coverage policy that includes liability, comprehensive, and collision insurance may offer the protection you need.