What is pay-as-you-go car insurance?
Pay-as-you-go insurance monitors one or more aspects of your driving and adjusts your car insurance premiums accordingly.
How does pay-as-you-go car insurance work?
Pay-as-you-go insurance means your insurer has a more accurate view of how you drive, so they can use this to give safer and more responsible drivers lower car insurance premiums.
Insurance providers get this view by using something known as telematics to monitor your driving – usually by using either 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 young or previously convicted drivers – it can 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 is when you pay premiums based on the mileage you cover per month. While ordinary car insurance policies do ask for an estimated mileage – and the lower your estimate the cheaper the policy – pay-per-mile gives your insurer a more accurate picture of your driving.
They use a telematics device to keep track of how much you’re driving – these use GPS technology to collect data before feeding it back to the insurer. Pay-per-mile policies 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.
Telematics car insurance
Telematics insurance is the most well-known variety of pay-as-you-go insurance, and historically has always been associated with the distinctive black box you have installed in your car.
However telematics refers to the technology used to monitor your driving habits, of which 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:
- Time spent driving
This 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 telematics policies will 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 requirement 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 that high-risk drivers looking for lower premiums would then take out third-party cover instead – and when insurers realised that more and 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.
Level of cover
Average premiums for young drivers without telematics
Average premiums for young drivers with telematics
Third-party, fire & theft
Data collected by MoneySuperMarket July-September 2019, accurate as of October 2019
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 also 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 insurers 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, and you’ll also get points on your licence and possible even 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 they’re a bit frisky
- 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 us as a result.
How much does pay-as-you-go car insurance cost?
Pay-as-you-go 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.
Telematics works slightly differently in that it also takes into account 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.
Adding telematics cover to a car insurance policy means that average premiums are reduced for drivers aged under 29 – but they become more expensive for older drivers. It’s worth noting that these average premiums are charged before drivers can use telematics equipment to earn further discounts through their driving habits.
Average premiums without telematics
Average premiums with telematics
Data collected by MoneySuperMarket between July and September 2019, accurate as of October 2019
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