Pay-as-you-go car insurance

Find out more about the different types of pay-as-you-go car insurance and whether it would be the right fit for you

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What is pay-as-you-go car insurance?

Pay-as-you-go car insurance (PAYG) is a type of cover that can be a cost-effective option if you do low annual mileage, or for young drivers who’ve been quoted high premiums they can’t afford.

There are a few types of PAYG insurance and they all work in slightly different ways.

With pay-per-mile insurance, for example, instead of paying a fixed annual premium, you pay a set rate every month or year, then you’re charged per mile you drive.

Pay-as-you-go car insurance

How does pay-per-mile insurance work?

Pay-per-mile insurance aims to cut the cost of insurance for people who use their car infrequently. It works on the basis that, when you do low mileage, you’re less likely to make a claim.

Your insurer will charge you a set monthly or annual fee to cover your car against fire, damage and theft when it’s parked and not in use.

After that, it’s PAYG to cover your driving. You’re billed extra for the miles you drive each month. The less miles you drive, the less you pay.

A black box may be fitted to your car - or you’ll be sent a tracker or tag in the post which you can install in your car yourself. This will measure the number of miles you do.

Who is pay-as-you-go insurance good for?

It may be worth looking at a PAYG policy if you fall into one of the following categories:

  • People who use their car infrequently, or just for short trips, and who cover less than 6000 to 7500 miles a year
  • People with second cars they only use occasionally
  • Young drivers who do low mileage and can’t afford a standard annual insurance policy
  • Students who only use their cars occasionally during their holidays
  • People who used to commute long distances, but now - due to retirement or switching to working from home, for example - have drastically cut their annual mileage
  • People with driving convictions who’ve been quoted a big increase in their premiums may also benefit from a PAYG policy

Can young drivers get pay-per-mile insurance?

It depends on the insurer - some may not cover drivers under 21, so check the policy.

Many young drivers instead opt for a different type of PAYG policy called telematics or black box insurance. This is where a monitor records your driving habits and rewards safe, responsible drivers with lower premiums over time.

What other types of pay-as-you-go insurance are there?

There are a few types of insurance that come under the PAYG umbrella. As well as pay-per-mile insurance, which we’ve looked at above, there’s also:

Pay-per-hour insurance

This is a type of temporary car insurance offering short-term cover - from just an hour to 30 days.

It’s suitable for someone who wants to drive a car for a short period without having to take out an annual policy.

For example, it would work for a student who wants to borrow their parents’ car when they’re home for the holidays. Or for someone who wants to share the driving with a friend on holiday.

Telematics or black box insurance

This type of PAYG policy uses a black box to monitor your driving habits. Driving well and responsibly can see you rewarded with lower premiums over time.

Telematics insurance is often taken out by new, younger drivers as it can work out cheaper than the high premiums typically charged to people in their age-bracket.

What’s covered under a pay-as-you-go policy?

Some providers only offer comprehensive cover on PAYG policies, however others will let you choose the level of cover you need from:

  • Third party only cover (TPO) is the legal minimum cover you can have in the UK. It covers the costs of any damage or injury you cause to other people, their vehicle or property when driving. But your car won’t be covered if it’s damaged or stolen
  • Third party, fire and theft cover (TPFT) insures you for damage or injury to other people, their vehicle or property, plus your car is covered for repairs or replacement if it gets stolen or is damaged by fire
  • Comprehensive cover is the highest level of cover. It includes everything included in TPFT cover, as well as repair or replacement costs if your car is damaged or written off and it’s your fault

Advantages and disadvantages of a pay-as-you-go policy

  • Advantages

    • If you don’t use your car much, this type of policy can save you money
    • A pay-per-hour policy allows you to use a car occasionally without having to commit to annual cover
    • It can be a cheaper option for younger drivers who can’t afford a traditional annual policy
    • A telematics policy that monitors how responsibly you drive can mean lower premiums for safe younger drivers
    • There’s usually no fee to cancel your policy

  • Disadvantages

    • If you do high mileage, then this type of policy could work out to be a lot more expensive than traditional car insurance
    • If circumstances change from the time you took out the policy and you end up having to take several unexpected, long journeys in your car, then you could face high charges
    • You still need to pay a monthly or annual flat fee to insure your car to be on the road. You need to factor this in when getting insurance quotes to be sure that a PAYG policy will work out cheaper for you

How much does pay-as-you-go insurance cost?

Just as with a traditional car insurance policy quote, the PAYG insurer will take into account a number of different factors when calculating your premium.

These include things like your car’s make and model, your driving history, where you live and keep your car overnight, your job as well as your estimated annual mileage.

It’s best to compare PAYG policies against traditional car insurance options to be confident you’ll end up paying less in the long run.

Do pay-as-you-go policies offer optional extras?

Yes, where they’re not already included as part of the cover, there’s usually the chance to buy optional extras like:

  • Breakdown cover
  • Legal expenses cover
  • Courtesy car
  • No-claims discount protection

Frequently asked questions

  • Temporary car insurance is sometimes classed as a type of PAYG insurance.

    It covers you for a period of as little as an hour to a month and is useful for people who might want to borrow a relative’s car for a short period, or for driving a vehicle you’ve just bought from the garage to your home, for example.

    You’re not required to have a telematics device installed in your vehicle for this type of car insurance.

  • Just like standard car insurance policies, you won’t be covered for things like wear and tear and punctured tyres. You may not be covered for putting the wrong type of fuel in your car either.

    Other general exclusions that can invalidate your insurance include:

    • Driving your car for work purposes other than commuting if you don’t have business cover
    • Driving while under the influence of drink or drugs
    • Driving a car that’s not roadworthy

  • Yes, as long as you have the insurance in place for 12 months without any claims, you can start building up your no-claims bonus.

  • This type of policy is usually a rolling contract which you can cancel without any penalty fees.

  • If your situation changes and you need to do more mileage than when you first took out the policy - perhaps you have a new job that requires a long commute - it might be cheaper for you to switch to standard car insurance. Talk to your insurer and get a quote for a traditional policy to compare.

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