Pay as you go car insurance

Pay-as-you-go car insurance (PAYG) is a specialised type of policy that’s designed so you only pay for cover when you’re using your car. Find out how it works and compare your PAYG insurance options.

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

Pay-as-you-go car insurance policies charge you according to how much you drive or the way you drive, rather than charging a flat annual premium, as a traditional car insurance policy would. Your insurer will usually use a telematics device to record this data and your premiums will be adjusted accordingly.

How does pay-as-you-go car insurance work?

Once you’ve taken out a PAYG insurance policy, you’ll be covered for any driving you do during the insurance period. You pay a basic set rate each month or year, and then pay a small additional charge for each mile or hour you drive in the insurance period.

Like telematics insurance, pay-as-you-go insurance will generally require you to attach a black box to your vehicle, which tracks how much you drive. However, with PAYG insurance, the black box does not necessarily measure your driving performance but instead records the distance and time you spend driving.

If you’re involved in an accident, or need to claim on your insurance, you’ll need to pay a regular excess amount as you would with a standard insurance policy.

Types of pay as you go car insurance

Pay-per-mile PAYG insurance

As the name suggests, you’ll pay for insurance based on the number of miles you drive each insurance period. Unlike standard car insurance, where you’ll be asked to estimate how many miles you drive per year, pay-per-mile insurance will ensure you are more accurately charged for the amount you drive.

You’ll have to pay a flat fee to cover the car while it’s stationary and the remainder of your premiums will be based on the distance you drive. A black box will be attached to your car to track this, but it won’t monitor your driving habits.

Pay-per-mile insurance can be a cheaper option if you’re a low mileage driver as you simply pay for the distance you travel.

Pay-per-hour PAYG insurance

This type of policy works in a similar way to pay-per-mile insurance, but rather than tracking your mileage, your premiums will be based on the amount of time you use your vehicle. The less time you spend driving, the less you’ll pay for insurance.

Again, you will pay a flat fee to cover your car while you’re not using it, and the remaining portion of your premiums will be based on how frequently you drive. Your insurer will track this data using a black box or plug-and-drive device, and you can usually follow this on an app.

Pay how you drive

Also known as telematics or black box insurance, this type of cover measures how well you drive, with discounted premiums given to those considered to be safer drivers. Your driving performance is based on a number of factors including your speed, acceleration, braking, and cornering, as well as the time of day and location you generally drive in.

To track your driving habits, you may be able to choose from a black box, a removable plug-and-drive device, or an app that uses the GPS in your smartphone.

Your insurer will use this data to give you a driving score and this will determine how much you pay for your car insurance. If you can demonstrate you are a safer driver, your insurance premiums are likely to be lower. You can usually track your performance via your insurer’s online portal or your smartphone app and you may even be given tips on how to improve your driving.

For these reasons, pay how you drive insurance can be particularly suited to younger or inexperienced drivers, who often face higher insurance premiums.

Temporary car insurance

If you only drive on certain occasions, such as when hiring or borrowing a car, temporary car insurance will provide cover just for the period you drive. This can be anywhere from 1 hour, or up to 28 days.

You can often get insured in just a matter of minutes which can be ideal if you need to borrow someone’s car at short notice.

Can pay-as-you-go car insurance save you money?

With regular car insurance, you pay a flat premium regardless of how often you actually drive. If you only use your car occasionally or only drive short distances, you may be paying more than you need to for car insurance.

In comparison, pay-as-you-go car insurance only charges you for the time or distance you drive. This means that if you don’t drive large distances or very often, you could save money with a pay-as-you-go policy. To be sure, it’s always best to run quotes for both options to see which works out to be the better value.

If you drive every day or often drive long distances, normal car insurance will likely be a cheaper option.

Is short term car insurance the same as PAYG?

Unlike PAYG insurance, short term car insurance won’t require you to have a telematic device fitted to your car. It also won’t track the number of miles you drive or how often you use your car.

Instead, short term car insurance provides cover for a short period of time, whether that’s one hour or one month. Although cover is restricted to that period, how much you use the car within that time won’t affect the amount you pay. Once that period of time is up, your cover simply expires.

Both types of policies have different uses as a result. You might choose PAYG insurance if you are a low mileage driver, for example, but pick short term cover if you’re borrowing a friend’s car for a few days.

What does pay-as-you-go car insurance cover?

Similar to standard car insurance, with PAYG insurance, you can usually choose from three levels of cover:

• Third party: This is the minimum level of cover required and covers you for injury or damage caused to another person, their vehicle or their property. It won’t cover damage to your own vehicle.
• Third party, fire and theft: This covers you for damage caused to others or their property and also covers your vehicle if it’s damaged due to fire or theft.
• Fully comprehensive: This provides the highest level of cover and includes all of the above, plus cover for you and your vehicle.

What does pay-as-you-go insurance not cover?

As with any type of insurance policy, there will be a range of exclusions to look out for in the small print. For example, you may not be covered for the following:

• Driving under the influence of alcohol or drugs
• General wear and tear to your car
• Claims resulting from leaving your car unattended or unlocked in a public area
• Damage caused by pets
• Tampering with your black box or plug-and-drive device
• Damage or breakdowns caused by repair work carried out by an unlicensed mechanic

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

The amount you pay for PAYG car insurance will depend on the number of miles or hours you drive, as well as factors such as:

• Your age
• Where you live
• The type of car you drive
• Whether you have any motoring convictions
• Your no claims bonus

Younger, less experienced drivers tend to pay more for their premiums than older drivers. For example, a 25-year-old driving 2,000 miles a year could pay £492 a year, while a 50-year-old covering the same mileage could pay £336 a year. (By Miles quote figures.)

What extras can you get with pay-as-you-go car insurance?

Depending on the insurer, you may be able to bolt on the following extras to your policy:

• Breakdown cover: Providing roadside assistance should your car break down mid-journey. It may also cover the cost of repairs.
• Courtesy vehicle: Providing you with another car while yours is being repaired.
• Legal cover: Paying out for any legal expenses incurred following a car accident that was not your fault.
• Personal accident cover: Providing cover against serious injury or death due to a road accident.
• Key cover: Covering the cost of replacing lost or stolen car keys.
• Windscreen cover: Covering repair costs for cracked or chipped windscreens.
• Driving abroad: Providing cover if you want to take your car overseas. Always check which countries your policy covers.

Is pay-as-you-go car insurance cheaper?

This will depend on how often you use your car. If you don’t cover a high number of miles or you only use your car from time to time, a PAYG car insurance policy could be cheaper than standard car insurance. However, if you drive regularly or have a high annual mileage, you may find standard car insurance works out to be better value.

Is PAYG insurance suitable for younger drivers?

PAYG insurance may be suited to young drivers, especially those at university or who only drive occasionally. You’ll be covered for when you need to drive, such as when you’re borrowing a friend’s car or returning home. However, bear in mind that some PAYG insurers will not cover those under the age of 25.

Alternatively, you could also look at temporary car insurance.

Is PAYG insurance suitable for learner drivers?

As a learner driver, you may be limited in when, and how much, you drive. While you’ll need car insurance in order to legally drive in the UK, it may not make financial sense to get regular car insurance if you’ll only be driving a handful of times each month.

PAYG insurance gives you ongoing cover but also means you won’t be paying for more extensive cover designed for frequent drivers.

Is PAYG insurance suitable for delivery drivers?

PAYG cover may be worth considering if you’re a part-time delivery driver, or only deliver in your local area. However, you should check the policy documents carefully as some insurers may exclude driving for commercial reasons.

If you drive every day or are responsible for long-haul deliveries, then regular insurance or telematics insurance will likely be more cost effective.

Pros and cons

Bottom line

If you’re a young driver or you don’t drive many miles per year, PAYG car insurance can be a great way to save money. However, a reduction in car insurance premiums isn’t guaranteed. So if you’re considering taking out a policy, make sure you compare the cost against a standard car insurance policy to check it’s the most cost-effective option.

Frequently asked questions

• How does a telematics device rate my driving?

  The black box tracker that is attached to your car measures a number of factors to determine how safe your driving is. This includes how you brake, accelerate and turn, as well as the areas and the time of day you generally drive.

• What does the insurance company do with telematics data?

  Your insurance provider uses your data to calculate how “safe” your driving performance is. The safer you drive, the less at risk you are of having an accident or needing to make a claim on your insurance. As a result, your insurer will offer you cheaper insurance premiums.

• How much can I save on pay-as-you-go insurance?

  This depends on your age, location and driving record, as well as the type of PAYG insurance you get. Experts have found that drivers who only use their car occasionally could save approximately £200 on insurance by switching to a PAYG policy.

• Do I need to pay for the black box tracker?

  The black box will generally be provided by your insurer. You will not need to buy your own.

• Who offers PAYG car insurance?

  Many popular providers now offer telematics or black box insurance, as well as PAYG insurance. Be sure to compare a range of insurers to find the PAYG policy that best suits you.

• Can I get pay-as-you-go insurance for other vehicles?

  You’ll usually only be able to use PAYG insurance for a car or motorbike. Vans or trucks won’t typically be covered.

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Written by

Rachel Wait

Writer

Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio