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If you’re an infrequent or low-mileage driver without the need for an annual policy, pay-as-you-go cover can be a great way to get cheaper car insurance.
Below, we take a look at the different types of pay-as-you-go car insurance, who should consider pay-per-mile insurance and how the premium is calculated.
Most of the time, pay-as-you-go refers to pay-per-mile car insurance. This is where you only pay for the miles you drive, alongside a monthly or annual charge to cover your car while it’s parked.
This can be a great option if you don’t drive enough to justify a traditional policy or low-mileage car insurance but still want to drive your own car rather than being a named driver on someone else’s vehicle.
There are a couple of other car insurance policies that are sometimes referred to as pay-as-you-go even though they work differently to pay-per-mile cover.
For example, short-term or temporary car insurance can also be referred to as pay-per-hour or pay-as-you-go insurance. This is where you buy car insurance on an hourly, daily, weekly or monthly basis when needed.
Similarly, black box insurance for younger drivers is occasionally referred to as pay how you drive insurance. This is where your driving habits are tracked by a telematics device and used to calculate your insurance premium.
There are two main types of pay-per-mile car insurance:
Essentially, with pay-as-you-go car insurance, the fewer miles you drive, the less you’ll pay for your cover.
While you’ll need to use some kind of device to track how many miles you’re driving, it’s unlikely to be a black box that requires installation by an approved mechanic (as can be the case with telematics cover for young drivers).
Typically, pay-per-mile policies use a:
Unless explicitly stated – for example, if you’ve taken out a pay-as-you-go telematics policy for young drivers – your device will only track how far you drive, not your driving performance.
Most pay-as-you-go insurance policies come with an app that allows you to track how many miles you’ve driven and how much each journey has cost.
Pay-per-mile policies usually offer fully comprehensive insurance as standard. This means you’ll be covered for:
Depending on your provider, your comprehensive pay-per-mile policy may also cover your windscreen, personal belongings, replacement locks and keys, personal injury and driving abroad. Additionally, it may provide courtesy car insurance.
It may be possible to find third party-only pay-as-you-go insurance or policies with third party, fire and theft cover.
When you take out pay-per-mile car insurance, you’ll be given a per-mile rate. This is the amount you’ll be charged for every mile you drive and is normally quoted in pence. The more you drive, the more your insurance will cost. You’ll also pay a fixed fee to cover your car when it’s not being driven.
As with normal car insurance, the per-mile rate you’re quoted will depend on several factors, including:
Whether pay-as-you-go car insurance is cheaper than standard car insurance depends on your profile as a driver.
If you’re an infrequent driver or use your car a lot less than you once did, then moving to pay-per-mile cover could save you money each year.
However, if you drive your car daily, you’d be better off taking out an annual policy. This is because the per-mile rate is normally more expensive for pay-as-you-go insurance than traditional cover.
If you drive fewer than 6,000 to 7,500 miles a year, it’s worth considering pay-as-you-go car insurance. It may be suitable for:
As with any form of specialised car insurance, it’s important to weigh up the pros and cons before taking out a policy:
Depending on what your pay-as-you-go policy already includes and what your chosen provider offers, you may be able to add the following optional extras:
True pay-as-you-go car insurance is usually an ongoing policy, while temporary car insurance covers a specific period. And, unlike pay-per-mile cover, short-term car insurance is more likely to be used on a borrowed vehicle (although you can use it on your own car if needed).
As long as you have your pay-as-you-go car insurance in place for 12 months and don’t make a claim, you’ll be able to build up your no-claims bonus.
Since most pay-per-mile car insurance policies require you to install a device in your car to track your mileage, you won’t be able to drive the moment you take out your cover.
The specifics of what happens to the data collected as part of your pay-as-you-go car insurance will depend on your provider. It’s important to read the details of your policy carefully.