Pay-as-you-go car insurance

Car insurance is more flexible than ever. With pay-as-you-go policies, you can get premiums based on how much or how well you drive. They can be a cheaper way for low-mileage motorists or young drivers to insure their car. Find out how pay-as-you-go car insurance works and if it could help you. 

Car insurance is more flexible than ever. With pay-as-you-go policies, you can get premiums based on how much or how well you drive. They can be a cheaper way for low-mileage motorists or young drivers to insure their car. Find out how pay-as-you-go car insurance works and if it could help you. 

Daniel Hutson
From the Motor team
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Posted 17 DECEMBER 2020

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

Pay-as-you-go car insurance offers a more personalised approach to car cover, as it monitors your driving habits rather than focusing purely on risk. It can be tailored to how much you drive, or the way you drive.

Insurance providers track your driving using smart technology and will adjust your premiums accordingly based on the information they receive.

Types of pay-as-you-go car insurance

Pay-as-you-go car insurance includes these options:

  • Pay-per-mile car insurance – you’ll be charged per mile driven, on top of a monthly or annual flat rate to cover your car while it’s not in use. A miles tracker will monitor how far you’re driving and an app will collect the data. Some policies cap the mileage, but you can always increase the amount. These policies are typically for motorists aged 25 and above who drive fewer than the average 7,400 miles a year.
  • Pay-per-hour car insurance – this works in a similar way to pay-per-mile insurance. The difference is that the tracker monitors the time you spend on the road rather than how many miles you cover.
  • Pay-how-you-drive car insurance – this is the most well-known form of pay-as-you-go insurance, more commonly known as telematics or black box insurance. It measures all aspects of your driving – for example acceleration, braking, cornering, mileage and time spent driving.

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

Whichever type of pay-as-you-go car insurance you choose, it allows your insurance provider to get a more accurate picture of your driving habits. But there are different ways of measuring this.

tracking device is installed in your car, usually a small box or a plug-and-drive device. Or you may be asked to download an app on your smartphone.

These devices tell your insurance provider about your driving depending on the type of cover you take out. Some will only log mileage, while others will record location details and times of day that you’re on the road. Others will monitor things like speed and braking too. This data is then used to determine how much you’ll pay for your car insurance premiums.

Not all of these policies work the same way so you need to make sure you fully understand what’s being measured, and how that would affect what you pay.

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

Anyone with lower mileage could benefit from pay-as-you-drive insurance, as might those who could be considered high risk. Motorists who could benefit the most include:

Older drivers – if you’ve retired, you might be driving far less than before and no longer need full cover

 Remote workers – if you’re working from home more due to the coronavirus pandemic, you might only use your car at weekends and on days off

High-risk drivers – insurance providers charge higher rates for risky drivers, so pay as you go could benefit those under 25 and motorists with driving convictions

Is pay-as-you-go suitable for young drivers? 

Yes, it could be if you’re a low-mileage driver. If you use your car simply to do the big shop and for infrequent trips, for example, then a pay monthly policy that’s based on how far you drive or for how long, could be a good option. That way you wouldn’t be paying for mileage or extra hours at the wheel that you don’t use.

If, on the other hand, you’re regularly at the wheel or drive considerable distances, then it might be worth tallying up how many miles you do a year to check to see if you go over the average miles (7,400) driven.

You might prefer to opt for a pay as you go policy based on how you drive. If you go for one of these, careful driving could potentially help you save on your premium.

It’s a good idea to compare the options to work out which would be best value for you, your vehicle and how much you drive.

What is the difference between temporary car insurance and pay as you go?

Unlike pay-as-you-drive insurance, temporary car insurance can’t be ongoing, as it only covers you for a set period of time – from one hour up to 84 days, depending on the provider. This type of policy can be useful when taking a new car home from a dealership or borrowing a friend’s vehicle.

Because it’s temporary, it won’t involve installing telematics in your car. It works more like a traditional car insurance policy – just for less time.

Do I need a black box to get pay-as-you-go insurance?

Pay-as-you-go insurance uses telematics technology to record your driving habits, miles or time at the wheel. So you’ll need to install either a black box, tracker, plug-and-drive device or smartphone app that your provider will supply you with, to send data back to them.

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

Some providers only offer comprehensive cover on their policies. But some let you choose the level of cover you want depending on your needs.

  • Third party insurance is the most basic cover you need to drive legally. It covers you for damage you might cause to another vehicle or if someone is injured and it’s your fault. You won’t be covered for damage to your own vehicle though.
  • Third party, fire and theft insurance offers the same cover as third party, and you’re also covered if your car is stolen or damaged by fire. 
  • Fully comprehensive insurance is the highest level of protection. It offers the same cover as above, but will also protect you as a driver and pay out for damage to your car. It can often be cheaper than third-party policies, which tend to be taken out by the highest-risk drivers.

What isn’t covered by pay-as-you-go insurance?

As with any insurance policy, there are some exclusions to pay-as-you-use car insurance policies.

  • Some pay-as-you-go providers won’t allow driving for commercial reasons. For that you’ll need specialist pay-as-you-go hire and reward insurance.
  • You’ll be excluded from telematics cover if you use your car for rallies, trials or driving on a racetrack. Remember, your insurance provider will be able to monitor your acceleration and braking.
  • If your insurance provider sends you a black box or plug-and-play device, tampering with it will almost certainly invalidate your policy.

There could be more exclusions, so it’s always worth checking your policy documents to be absolutely sure.

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

With pay-per-mile and pay-per-hour car insurance, you’ll be charged a set rate for when your car is stationary, and another rate for each mile or hour you drive. As with standard insurance, your basic rate is based on things like your driving history, age, occupation and postcode where you'll keep your car.

Pay-how-you-drive premiums are based on your all-round driving behaviour and could depend on your driving score. A good score can bag you a discount, whereas a bad score might increase your premium, so it pays to be a careful driver.

Advantages and disadvantages of pay-as-you-go insurance

To help you decide whether it’s right for you, here are some of the pros and cons of pay-as-you-go cover:


  • You could save money if you only drive occasionally or at off-peak times
  • Pay-how-you-drive policies could be a cheaper option for young drivers aged 17 to 24, who may often be charged expensive premiums as they’re deemed a greater risk
  • Pay-how-you-drive policies could reward you at the end of your policy for good driving


  • If you cover a lot of mileage each year, you’ll probably be better off with a traditional car insurance policy
  • Some policies might limit the time of day you can drive, and there may be a minimum age limit
  • If your driving circumstances change, your insurance costs could increase (for example, you get a new job or move house and have a longer commute)

Aside from pay-as-you-go insurance, there are other ways in which you could get cheaper car insurance.

Can I add optional extras to my pay-as-you-go policy?

Optional extras you can add to your pay-as-you-go car insurance policy usually include:

  • breakdown cover – get roadside assistance if your car breaks down
  • courtesy car cover – you’ll be provided with a temporary replacement vehicle if your own car is being repaired
  • legal expenses – this pays for legal fees resulting from a car insurance claim
  • additional driver cover – you could add extra drivers to your policy, although remember that their driving habits will be monitored too
  • lost keys cover – be covered for the cost of replacing your keys if they’re lost or stolen
  • windscreen cover – this pays for repairs to your windscreen if it’s chipped, cracked or needs replacing

Can I compare pay-as-you-go insurance quotes?

You can’t yet compare pay-as-you-go insurance with us, but we do have some great deals on short-term car insurance and traditional car insurance. When you compare, you can view telematics policies that monitor the way you drive, with other standard quotes.

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