Pay-as-you-go car insurance
Car insurance is more flexible than ever. With pay-as-you-go insurance, 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.
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.
When you compare car insurance quotes, you can view telematics policies that monitor the way you drive, as well as per mile policies that monitor how far you drive, along with standard quotes. We also have some great deals on short-term car insurance and traditional car insurance.
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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. A 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?
- Older drivers – if you’ve retired, you might be driving far less than before and no longer need full cover
- Remote workers – if you work from home, you might only use your car at weekends and on days off
- High-risk drivers – insurance providers charge higher rates for risky/previously convicted 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 (6,800) 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.
Types of pay-as-you-go car insurance
Pay-as-you-go car insurance includes these options:
Pay by mile car insurance
You’ll be charged based on the number of miles 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 6,800 miles a year. They may also be attractive to people who have started to work from home during and after the COVID-19 pandemic. If your commuting habits have changed after the pandemic, you might want to consider a pay by mile policy.
It's important to know that, unlike a telematics/black box policy, the data collected on your driving habits won’t track your driving performance. It’ll only be collecting how far you’re driving.
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.
If you live in a busy city, like London, you might want to avoid a policy like this, as being stuck in traffic would count against you in this instance. However, if you live in a rural area or do a lot of motorway driving, a pay by hour policy may work better than a pay by mile one.
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 car insurance. It measures all aspects of your driving – for example acceleration, braking, cornering, mileage and time spent driving.
This performance data is fed back to your insurance provider to assess your driving. If you prove that you’re a safe driver, you can be rewarded with cheaper premiums. So, if you feel confident that you’re a good driver, this type of policy could suit you.
What does pay-as-you-go car 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.
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.
What are the advantages and disadvantages of pay-as-you-go car 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:
Advantages of pay-as-you-go car insurance
- 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
Disadvantages of pay-as-you-go car insurance
- 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 could 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
- Personal accident cover – provides compensation to you if you’re badly injured, or possibly to your partner, if you are killed in a car accident
- 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
- Multi-car insurance - allows you to cover more than one car on the same policy
- Misfuelling - can cover the cost of repairs as a result of misfuelling your car
- 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
- European car insurance - covers you while driving abroad
What our expert says...
"For lower mileage drivers, pay-per-mile policies could be the most cost-effective option to cut the cost of car insurance. Motorists who only use their cars occasionally could save by switching to pay-by-mile insurance. These flexible policies may also benefit motorists who are unsure about how often they will use their cars this year as payments will be based on the miles they actually drive."
- Alex Hasty, Insurance expert and Director at Compare the Market
Frequently asked questions
Is temporary car insurance the same as pay as you go?
No, 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?
Yes, pay-as-you-go insurance uses a black box, or similar device, to record your driving habits, miles or time at the wheel.
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.
Is pay-as-you-go car insurance cheaper?
Here’s a breakdown of when a telematics policy (of any kind) could work out cheaper for you**:
| Age | Telematics is cheaper | Telematics isn’t cheaper |
|---|---|---|
| 17-20 | 78.72% | 21.28% |
| 21-24 | 70.61% | 29.39% |
| 25-29 | 43.38% | 56.62% |
| 30-39 | 32.93% | 67.07% |
| 40-49 | 25.68% | 74.32% |
| 50-64 | 16.60% | 83.40% |
| 65-79 | 5.21% | 94.79% |
| 80+ | 1.97% | 98.03% |
**Based on Compare the Market data between 1 November 2021 and 1 April 2022.
Whether pay-as-you-go car insurance is cheaper than regular car insurance depends on quite a lot. It could depend on which of the three main types you’re using: pay-by-mile, pay-by-hour or pay-how-you-drive. Each of these three have different costs associated with them, and then the amount of driving you do, or your driving performance, will then be tracked to set your premium costs.
What are the alternatives to pay as you go car insurance?
Here are the alternatives to pay as you go insurance:
- Third party only – the minimum cover required by law. This level of insurance only covers the cost of compensating other drivers and their vehicles against injury or damage. It doesn’t cover you or your vehicle.
- Third party, fire and theft – includes the same cover as above, but also covers your vehicle against fire damage and theft.
- Fully comprehensive – the highest level of cover available, including all of the above, but also insuring both you and your vehicle against injury and damage in an accident.
- Temporary car insurance – if you only need cover for a short period, temporary car insurance policies can provide cover for as little as one hour, up to a full 84 days.
Will my no claims bonus be protected?
If you’ve built up a no claims discount from a previous policy, you should be able to transfer this over to your new pay as you go one.
Are there any cancellation fees if I cancel my policy?
Cancellations fees are quite common with car insurance policies, so you should check your policy wording, before cancelling.
If the cancellation fees are offset by any potential savings you could make with a new pay as you go policy, then you might choose to go ahead anyway.
Will my policy come with an app?
Pay as you go car insurance policies will come with either an app or a black box, which needs to be installed onto your car.
These things are used to track either the miles driven, time spent on the road, or your driving performance. Which of these depends on which type of pay as you go policy you take out.
Will the black box track my speed?
If you take out a pay-how-you-drive policy, your driving performance will be tracked, including your speed, cornering, braking and more.
For pay-by-mile or pay-by-hour policies, your speed won’t be tracked and used to calculate your premiums.
You can learn more about how black box insurance works here.
What happens to my data and information?
Your driving data is only used by your insurance provider to monitor your driving behaviour and to collect evidence for any claims you or another driver makes against you.
Your data won’t be sold off to third parties, but it could be shared with provider partners and the police.
Is pay-as-you-go car insurance the same as monthly car insurance?
No, the difference is that temporary car insurance won’t normally require you to install a black box to your car, or force you to download an app.
Temporary car insurance can be taken out for as little as an hour, which makes it even more flexible than a pay as you go policy.
Are there any curfews or night-time driving restrictions?
Some providers will have certain rules you’ll need to follow, and this could include a curfew, which would restrict you from driving during specific times.
Can I get pay as you go car insurance for an electric vehicle?
Yes, pay-as-you-go car insurance policies are available for hybrid and electric cars.
Can I compare pay-as-you-go insurance quotes?
When you compare car insurance quotes, you can view telematics policies that monitor the way you drive, as well as per mile policies that monitor how far you drive, along with standard quotes. We also have some great deals on short-term car insurance and traditional car insurance.
