Pay-as-you-go car insurance bases your premiums on when, how well and for how long you drive – and it could help sensible young drivers cut their insurance costs
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.
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.
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.
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 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 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 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: 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. 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. 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: 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.Pay-per-hour car insurance
Pay-how-you-drive car insurance
Is short-term car insurance pay-as-you-go?
What does pay-as-you-go car insurance cover?
Level of cover |
Average premium for drivers without telematics |
Average premiums for drivers with telematics |
|---|---|---|
Comprehensive |
£1,486 |
£1,175 |
Third-party only |
£2,805 |
£3,079 |
Third-party, fire and theft |
£2,134 |
£1,697 |
Data collected by MoneySuperMarket for drivers aged under 25 excluding provisional driving licences, January to March 2020, accurate as of May 2020
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.
| Age | Average premium without telematics | Average premium with telematics |
|---|---|---|
| 17-19 | £1,176 | £1,275 |
| 20-24 | £1,174 | £1,040 |
| 25-29 | £795 | £842 |
| 30-39 | £577 | £720 |
| 40-49 | £428 | £622 |
| 50-64 | £307 | £515 |
| 65+ | £290 | £475 |
Data collected by MoneySuperMarket for drivers aged under 25 excluding provisional driving licences, January to March 2020, accurate as of May 2020
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:
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.
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.
You can cancel your car insurance policy, but there could be costs involved. Here’s what you need to know
We explain the intricacies of car tax, or Vehicle Excise Duty as it’s also known
There are different rules for using car lights, and it's not just about day and night - here's what you need to know
Find out whether multi-car insurance is right for your family, and find out how to get a good deal.
Our guide will help you protect your property and possessions.
Find out how this type of insurance can help you if you need to replace your car, with one just as good
Find out how to find the best deal and save money on your car insurance when you first start driving at 17.
Learn about car insurance groups, and discover how to get a cheaper price for insuring a car in any group.
Discover how to get insured while you learn to drive, and how to get the right insurance before you pass your test.
Find out everything you need to know about insuring a car for a short period, and discover how to get the best price.
Learn how to make sure you’re insured as a young driver, and how to get the best value insurance
