Pay as you go car insurance

Pay as you go insurance may be a cheaper way to insure your car if you drive very few miles, or if you're a new or young driver battling expensive premiums.

Amy Smith

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How pay as you go car insurance works

Pay as you go (PAYG) car insurance ask you to pay a fixed annual or monthly rate, plus a charge per mile or hour you drive.

If you don’t drive your car at all, the fixed rate is all you pay, but you may want to register the car as off the road (SORN) instead.

Pay as you go insurance is usually a rolling contract, so you can cancel the policy at any time without being charged a fee, but it’s worth checking your policy to be sure.

You may need to fit a tracker, or a black box, to your car via the onboard diagnostics (OBD-II) socket, which is a standard feature for all cars made after 2002.

Key points

  • Pay as you go car insurance means you pay a set rate every month, then top your insurance up with the additional cost per mile, or per hour
  • The subscription is usually a rolling contract, so you can cancel if you need to, but check your terms and conditions
  • You may need to fit a black box to your car using the Onboard Diagnostics (OBD-II) socket, or download an app before you start driving

Levels of cover for PAYG policies

Some insurers might cover the basics of fire, vandalism, theft and accidental damage while it’s not in use and then provide comprehensive cover when you’re driving around.

Other insurers will offer one level of cover for the whole of your policy, whether the car is parked or not. We’d suggest asking your insurer to clarify what you’re covered for and when.

Types of PAYG insurance

Pay per mile PAYG insurance

You’ll be charged per mile driven, on top of a base rate.

You might need a tracker fitted to your car, to monitor how many miles you drive – a downloadable app collects the data.

Measuring miles with a black box tracker

A black box tracker measures how far you drive, and communicates that to the insurer and an app if it’s part of the service.

If you have an app you won’t need to manually add in how far you’ve travelled, but you can use it to get an idea of how much your journey will cost.

There’s a time limit to plug in the black box to avoid cancellation, or sometimes an additional charge.

Low mileage

Mileage limits vary between insurers, but usually, there’s no upper limit and you won’t be charged more per mile if you drive more than you expect. Check your policy documents to be sure.

Pay per hour PAYG insurance

These work the same way as pay per mile insurance. Your driving is tracked but it counts the amount of time you drive for, rather than how many miles you cover.

Some policies have a cap on miles or hours you can drive a month. If you’re going to go over the capped level, you can always increase the amount. It’s just like topping up your mobile phone credit.

Pay how you drive

More commonly known as telematics or black box insurance, pay how you drive policies measure aspects of your driving, like your breaking, acceleration, cornering and mileage.

How much you pay for your insurance is based on this data – the safer you drive, the lower your premiums.

Short-term insurance

You can get short-term or temporary car insurance cover from an hour up to a month. These policies are useful when you need to get a car home from a dealership or you’re borrowing a friend or relatives’ car – make sure you have their permission.

It’s unlikely you’ll be able to find temporary telematics cover though, as the cost of providing, installing and removing the tracker wouldn’t be worth it for insurers.

If you stay with a pay as you go policy for one year, you’ll start to build up your no claims discount, just like with regular car insurance

Can you save money with pay as you go cover?

If you don’t drive regularly, you could save money on your premiums, but you probably won’t be better off if you drive your car every day.

Compare telematics, short-term insurance, and regular car insurance to make sure you’re getting the fairest price.

The benefits

Young drivers (17 to 24-year-olds) are often saddled with expensive car insurance, due to their lack of experience and increased risk of an accident.

Pay as you go insurance might be a cheaper option for young, infrequent drivers, as your premiums are tailored to how far, how long or how well you drive, not the performance of your age group.

This also applies to older drivers. As you hit 65, your premiums will rise, despite your years of experience.

You shouldn’t have to pay the same for your insurance as someone who drives regularly, if you only occasionally drive to the shops or go out for the day. PAYG insurance could help get you a fairer deal in this case.

The drawbacks

If you go over a capped limit and forget to top up your hours or miles on the road, you’ll be driving without insurance, which is illegal.

There might be a minimum age limit, though this varies between insurers, so it’s best to check.

While having a cap on the maximum number of miles or hours you can drive isn’t a problem if you can top up the limit, some policies don’t have the option to add on additional distance or time.

You also can’t ‘pause’ hourly insurance – time keeps on ticking whether you want it to or not – and you’d have to ask your insurer if your no claims discount is protected if you make a claim.

Pay as you go insurance might be the best option for some, but there are other ways you can get cheaper car insurance, such as paying annually.

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