Pay-as-you-go insurance is an increasingly popular type of cover that could reduce insurance costs for low-mileage and younger drivers. But is it right for you?
How does pay-as-you-go car insurance work?
Pay-as-you-go (PAYG) car insurance providers use 'telematics' to monitor how many miles you drive each month, then base your monthly premium on this data.
With some providers and products, additional data is also collected to determine how safely or well you drive - which also impacts how much you pay.
What kind of drivers might benefit from PAYG car insurance?
Pay as you go/pay as you drive insurance could be ideal for:
- Low-mileage drivers (for example, possibly those who car share)
- Careful drivers
- Young drivers with low annual mileage
- Those with driving convictions whose premiums have been hiked
Traditional insurance is based on estimated mileage, rather than the distance you actually drive.
Conversely, pay-as-you-go insurance is based on miles driven, which could make it more cost effective for those with a low yearly mileage.
Some telematics systems also monitor how well or how safely you drive.
Careful drivers are rewarded with lower monthly premiums - so it could be a great option for safer motorists.
New or younger drivers who only plan to do low mileage throughout the year may also benefit; especially considering a traditional insurance quote can be high for younger/less experienced drivers.
Some PAYG policies stipulate the insured driver must be 21 or older. This is because those aged 17-20 are statistically more likely to be involved in a collision.
What is considered 'low mileage'?
As a rule of thumb, 6,000 miles per year or less would be considered low mileage.
If this sounds like you, a pay-as-you-go policy could make sense.
What form does a telematics system take?
Your telematics or 'black box' system is provided to you by the insurance provider (usually free) and may take a variety of forms.
It may literally be a 'black box', a plug-and-play device, or even a smartphone app.
Find out more about Black Box insurance
What types of pay-as-you-go insurance are available?
There are three main types of pay-as-you go car cover:
Pay-per-mile car insurance
Pay per mile insurance policies involve having a telematics system tracking device fitted to your vehicle that measures how far you travel.
Some systems can plug straight into your vehicles' odometer, while others use GPS technology to work out your mileage.
Importantly, pay-per-mile car insurance doesn't take into account how you drive when calculating the premium.
PPM premiums include a flat fee for when your car is parked up (protecting against theft, vandalism etc.), with the rest based on mileage data.
Pay-per-hour car insurance
As the name suggests, pay-per-hour car insurance premiums are based on how much time you spend driving.
Otherwise, they work in a very similar way to pay-per-mile policies; a flat fee is charged for when your car is parked, and the rest is calculated later.
Pay-how-you-drive insurance
Pay-how-you-drive car insurance works by monitoring how well or safely you drive via a 'black box’ or similar device, or a smartphone app. The premium is based on this data (plus a flat fee for when the car is not in use).
New, younger drivers are among those who would benefit most from this type of insurance cover.
Pay-as-you-go coverage levels
Coverage offered under PAYG car insurance works in a similar way to regular cover.
These are:
Third party only cover (TPO)
This is the UK legal minimum.
It covers damage caused by you to other people, their vehicles or property. However, it does not cover your own vehicle against damage or theft.
It is usually the cheapest option.
Third party, fire and theft cover (TPFT)
This policy type offers the same coverage as TPO, but it also covers your own vehicle against damage, fire and theft.
Comprehensive cover
Comprehensive cover gives you all the protection of TPFT, but also covers you if your vehicle is damaged or written off - and you were at-fault.
A good comprehensive pay-as-you-go policy would also include things like car breakdown cover; driving abroad; car contents; lost keys; misfueling; and cracked windscreens.
Note that some pay-as-you-go policies are comprehensive-only.
Pros and cons of pay-as-you-go car insurance
Pros
- You'll save money if you do low mileage
- Pay-per-hour is a great for occasional drivers, since they can avoid the relatively high cost of an annual policy
- Could suit younger drivers who don't plan to do high mileage and who cannot afford regular cover
- Could suit young motorists who drive safely
- Unlikely to face cancellation fees, policy cancellation is normally free
Cons
- High mileage drivers will probably pay a lot more compared to a regular insurance policy
- If you need to make several unexpected, long-distance trips, your premium could soar
- A flat fee is still chargeable for when your car is parked up
- Since you are paying by the month, you won’t benefit from any up-front annual payment discount (as may be offered by traditional insurance policies)
What other factors impact a pay-as-you-go premium?
Alongside mileage, a PAYG premium will be based on:
- Your age
- Your occupation
- Your driving history
- Where the car is parked overnight
- Where you live
- Vehicle make and model
- Vehicle age
Get multiple quotes before you decide
Insuring your car is not going to be cheap, whether you choose pay-as-you-go or regular insurance. As such, it’s worth shopping around and taking the time to compare car insurance quotes.
Get multiple insurance quotes for both PAYG and traditional insurance to see how much - if anything - you could save over the year.
At Start Rescue, we’ve teamed with Cornmarket to offer exclusive rates on car insurance to our customers. Find out more by viewing our dedicated car insurance from Cornmarket webpage.
Is pay-as-you-go cover the same as temporary car insurance?
PAYG and temporary car insurance are similar in that they can be taken out on a short-term basis.
However, temporary car insurance can be taken out for as little as an hour (up to 30 days), while a PAYG policy is for at least a month.
Additionally, temporary car insurance does not involve having a 'black box' fitted to your car - so how far or how well you drive is not relevant.
So, while temporary car insurance and pay-as-you-go cover are sometimes used interchangeably, they should not be confused.
For more ways you can save money on your motoring, why not check out our article on the pros and cons of economical cars.
