Find out more about the different types of pay-as-you-go car insurance and whether it would be the right fit for you
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-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.
It may be worth looking at a PAYG policy if you fall into one of the following categories:
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.
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:
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.
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.
Some providers only offer comprehensive cover on PAYG policies, however others will let you choose the level of cover you need from:
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.
Yes, where they’re not already included as part of the cover, there’s usually the chance to buy optional extras like:
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:
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.