Pay-as-you-go car insurance

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

Pay-as-you-go insurance (sometimes known as telematics insurance) monitors one or more aspects of your driving, either based on how much you drive or the way you drive, and adjusts your car insurance premiums accordingly.

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

All types of pay-as-you-go car insurance give your insurer a more accurate view of how you drive, so they can use this to give safer and more responsible drivers lower car insurance premiums.

With pay-per-mile or pay-per-hour insurance, it typically works that if you drive less, you’re probably at a lower risk of making a claim, so you’ll pay less.

Likewise, with a pay-how-you-drive policy, if you’re considered a safer driver, then you’re also considered lower risk.

Insurance providers get this view by using something known as telematics to monitor your driving – usually by using a black box, a plug-and-drive device or an app on your smartphone.

The device you choose sends information about your driving depending on the type of pay-as-you-go cover you take out – some will only send mileage, while others send location and timing too.

Who is pay-as-you-go car insurance designed to help?

Pay-as-you-go car insurance isn’t for everyone, but for people seen as ‘higher-risk’ by insurers – such as younger or previously convicted drivers – it may help you get lower premiums than you would find otherwise.

What types of pay-as-you-go car insurance are there?

Pay-as-you-go car insurance comes in different forms depending on how closely you want your driving to be monitored – you have the following options:

Pay-per-mile car insurance

Pay-per-mile car insurance means you pay premiums based on the mileage you drive each month. Standard car insurance policies ask for an estimated mileage but a pay-per-mile policy gives your insurer a more accurate picture of your driving.

It’s perhaps worth considering a pay-per-mile policy if you’re a lower mileage driver. According to the latest National Travel Survey figures from The Department for Transport, the average annual mileage driven in England was 7,600 miles in 2018.

It stands to reason that the less time your car spends on the road, the less likely you are to have an accident, so you’re at lower risk of making a claim than someone driving a higher mileage. But an analysis of quotes for standard car insurance policies on MoneySuperMarket between 1 July 2019 and 30 September 2019, shows the average cost of standard car insurance for motorists driving between 5,000 and 6,000 miles a year was £733.13.

Those driving between 11,000 and 12,000 miles a year were quoted an average £523.46 for their car insurance. So, if you’re a lower mileage driver, then pay-per-mile car insurance may save you money.

Data collected by MoneySuperMarket from July 2019 to September 2019

Pay-per-mile policies use a telematics device to keep track of how far you’re driving to work out your monthly premium but they don’t use driver scoring to use how how you’re driving to change your price. These policies often use GPS technology to collect data before feeding it back to the insurer though some can collect mileage directly from your car’s odometer. They have a flat premium rate that covers your car while it’s parked, before the remaining amount is added based on the miles you covered over the month.

Pay-per-hour car insurance

Pay-per-hour car insurance works in a similar way to pay-per-mile, however instead of monitoring your mileage and basing your premiums off how much you’ve driven, insurers monitor the time you spend on the road.

As with a pay-per-mile policy there is usually a flat rate to cover your car while it’s stationary, while the remainder of your premiums depends on you. They’ll also send a tracker, either a black box, plug-and-drive device or smartphone app, to send data.

Pay-how-you-drive car insurance

Pay-how-you-drive car insurance is a form of telematics insurance. It is perhaps the most well-known variety of pay-as-you-go insurance and has historically been associated with the distinctive black box you have installed in your car.

Telematics refers to the technology used to monitor your driving habits, and a black box is only one option. You can also get removable plug-and-drive devices that work in the same way, and an app that uses the GPS in your smartphone.

These devices monitor more of your driving habits, including:

• Acceleration
• Braking
• Cornering
• Mileage
• Time spent driving
• Location

This information is fed back to your insurer, which uses it to give you a driving score – the better your score, the lower your premiums. You’ll be able to keep track of your driving score and habits through your insurer’s online portal or smartphone app. Many pay-how-you-drive telematics policies also give you advice on improving your driving to help you reduce your premiums further.

Is short-term car insurance pay-as-you-go?

Short-term car insurance is similar to pay-as-you-go cover, however it doesn’t usually involve installing telematics in your car. Instead, it works the same way as basic car insurance – you’ll give an estimated mileage and your insurer will use that, among a number of other factors, to set your premiums.

You’ll be able to take out short-term car insurance to cover you for any time between an hour and a month, though different insurers might not offer all of these options.

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

As with standard car insurance, when you take out a pay-as-you-go policy you’ll be able to choose from three levels of cover:

• Third-party: Third-party car insurance is the minimum legal level of cover you can get if you own and drive a vehicle. It insures you for any damage you do to another person (the third party), their vehicle or their property
• Third-party, fire and theft: Third-party, fire and theft is the next step up, and as well as third-party cover you’ll also be able to claim for damage done to your own car as a result of a fire or theft
• Fully comprehensive: Fully comprehensive car insurance offers the most cover, and includes all of the above as well as any other kind of damage to your own car.

Fully comprehensive used to be the most expensive policy due to the extent of cover it offered. However, this meant high-risk drivers looking for lower premiums would then take out third-party cover instead – and when insurers realised that more claims were being made on third-party policies they flipped the pricing.

As a result, fully comprehensive car insurance is generally the cheapest available policy as well as the one that offers the most cover – making it the best choice for all drivers.

Data collected by MoneySuperMarket for drivers aged under 25 excluding provisional driving licences, January to March 2020, accurate as of May 2020

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

Pay-per-mile or pay-per-hour car insurance charges a fixed annual or monthly rate for when your car is stationary, and another rate per hour or mile you drive. If you don’t drive frequently then it’s likely a pay-per-mile or pay-per-hour policy could help you reduce your premiums.

Short-term car insurance works in a similar way in that you won’t have to pay for a year’s worth of cover if you only need it for a few days, weeks or months – it will depend on how much you drive.

Pay-how-you-drive insurance works slightly differently in that it  monitors your driving habits and behaviour, which means you’ll see lower premiums for driving sensibly as well as avoiding peak traffic or night-time hours. 

Choosing pay-how-you-drive cover for a car insurance policy means that average premiums might not be immediately cheaper than a standard policy - though some younger drivers may see cheaper premiums. But it’s worth noting that these average premiums are charged before drivers can use telematics equipment and potentially earn further discounts through being measured for safe and sensible driving habits.

Data collected by MoneySuperMarket for drivers aged under 25 excluding provisional driving licences, January to March 2020, accurate as of May 2020

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

The extra policies you’ll be able to take out with your pay-as-you-go policy will depend on your insurer, but in general you should have the option of adding:

• Breakdown cover: Breakdown cover is available both as a standalone policy and as an add-on to car insurance. It pays out for the cost of calling a mechanic if your car breaks down when you’re out and about – and depending on the level of cover you have, it’ll also pay for repairs
• Courtesy vehicle: Often included as part of either standard car insurance or breakdown cover, a courtesy vehicle policy means you’ll have access to a replacement vehicle while yours is being repaired
• Legal cover: Legal cover offers cover for legal expenses resulting from a car insurance claim
• Driving abroad: You can  take out car insurance for driving abroad, which will cover you in certain countries depending on the insurer and policy you take out
• Multi-car: A multi-car policy lets you add cars to your car insurance, and it can be a cheaper method of covering multiple vehicles than insuring them separately
• Additional driver: Insurers will also let you add extra drivers to your policy, which can again be cheaper than taking out an individual policy for each driver. You should remember that the driving habits of any additional drivers on a pay-as-you-go policy will all be recorded and attributed to the policy’s main driver – so be careful about who you share the car with. And while younger or inexperienced drivers can find cheaper cover as a named driver on a parent or guardian’s policy, the actual policy holder is likely to see an increase in premiums
• Contents: It’s not uncommon to keep things in your car, from CDs and stereos to sat-navs and clothes. Contents policies as part of your car insurance insure you in case these items become lost, damaged or stolen – but your ability to claim on this policy will likely depend on factors such as your car’s security and storage
• No claims: The longer you go without claiming on your policy, the cheaper your premiums will be as your insurer will see you as a low risk – this is called your no-claims bonus. You can insure your no-claims bonus in case you do have to claim, leaving your bonus preserved and your premiums still discounted
• Personal accident: Personal accident policies pay out a lump sum to you or a beneficiary if you become injured or you pass away as a result of a road accident
• Keys: If you lose your car keys or they’re stolen, you’ll be able to claim for the cost of a new set
• Fuel: Fuel cover insures you for the cost of repairs if you accidentally fill your car up with the wrong type of fuel
• Windscreen: Windscreen insurance covers you for repair costs relating to broken windows or windscreens

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

• Driving while intoxicated will invalidate your car insurance policy. You’ll also get points on your licence and possibly arrested – just don’t do it
• Using your car for races, trials or driving on a racetrack will also exclude you from cover unless you’ve taken out a policy especially for doing this – which is unlikely with telematics. Remember your insurer will be able to monitor your acceleration and braking
• Leaving your car unattended or unlocked in a public space increases the risk of it being stolen, and doing so will void your policy
• You won’t be able to submit claims for damage resulting from wear and tear
• You also won’t be covered for damages or breakdowns resulting from faulty repair work carried out by an unlicensed or unauthorised mechanic
• Any damage caused by pets won’t be covered, so you should consider carrying your cat or dog in a crate when taking them out for a ride
• If your insurer sends you hardware such as a black box or plug-and-play device, tampering with this in any way is likely to void your insurance policy. You’ll also probably have to pay a fee for removing the device or a fine if you cause any damage

Telematics insurance shouldn’t exclude you from being able to claim if you drive after curfew or over your mileage estimate – however you can expect your premiums to go up.

Compare cheap car insurance quotes

It’s easier to get cheaper car insurance when you compare quotes with MoneySuperMarket. All you need to do is give us a few details about yourself, your car and your driving history, and we’ll put together a list of quotes to match your requirements.

You’ll then be able to compare deals by their overall monthly and annual cost, the level of cover you’ll get and the excess you’ll pay to make a claim. Once you’ve found the deal you want, just click through to the provider to finalise your purchase.

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