What is pay-as-you-go car insurance?
Pay-as-you-go car insurance (sometimes called telematics insurance) is a usage-based car insurance where you either pay-per-mile, or pay-how-you-drive.
Both types of car insurance involve you putting a tracker in your car, with the tracker recording either how far you drive (pay-per-mile) or the way you’re driving (pay-how-you-drive).
How does pay-as-you-go car insurance work?
Pay-as-you-go car insurance works in a slightly different way for pay-per-mile and pay-how-you-drive insurance.
In both cases, the insurer is trying to understand if you are a high or low risk driver. If you’re high risk you pay more, if you’re low risk then you pay less.
So with pay-per-mile, it typically works that if you drive less, you’re probably a lower risk and so pay less.
Likewise, with pay-how-you-drive, if you’re considered a safer driver, then you’re considered lower risk, so you’ll pay less too.
Pay-per-mile car insurance
With pay-per-mile car insurance, the less you drive, the less opportunity there is for you to be involved in an accident. Because the risk is lower, your car insurance should be lower.
You typically pay a fee at the start of your policy, this is to cover your car against theft, vandalism and accidental damage while it’s parked.
You’ll also be sent a tracker to plug into your car and record the miles you do.
The tracker will then send your mileage to your car insurer, which you should be able to review in your pay-as-you-go car insurer’s app or on their website (if they offer this). You’ll typically then pay for the miles you’ve driven at the end of the month – and only those miles.
You’ll normally have to pay a standard excess fee on your pay-per-mile car insurance if you want to claim.
Pay-per-mile car insurance can offer fully comprehensive car insurance cover, and is usually better suited to lower mileage drivers (7,000 miles a year or lower).
Pay-how-you-drive car insurance
Pay-how-you-drive (telematics) insurers monitor the kind of driving you do and when you do it. If you accelerate hard and brake sharply, drive on dangerous roads and at dangerous times – peak commuter times and late at night – you pay more.
Insurers send you a small telematics box (sometimes called a black box). It tracks how fast you drive different types of roads, how many motorway miles you do, the time of day you drive, if you brake or accelerate sharply and other measurements of how safe you’re driving.
This information is sent back to your telematics insurer, who’ll then decide if they’ll give you a discount on your car insurance – based on how safely you’ve driven.
Pay-how-you-drive insurers reward safe driving in different ways, some by lowering the price per mile, some by offering additional miles for no extra charge. Some black box insurers reward safe driving at annual renewal, with others more frequently throughout the year.
Telematics insurers will usually have an app or online dashboard you can look at to see how your driving was scored and why you are paying more, or paying less, so you can modify your driving to save money.
Telematics car insurance policies can be a good idea for drivers who tend to have to pay a higher amount for standard car insurance policies – for example, young drivers (under 25), new drivers and drivers with past driving claims or convictions.
Could you save money with pay-as-you-go car insurance?
Pay-per-miles insurance provider, By Miles, analysed 2,500,000 quotes on MoneySuperMarket from 1 July 2018 to 30 September 2018.
They found that the average cost of car insurance for motorists driving 5,000 to 6,000 miles a year was £809.01.
At the same time, motorists driving 11,000 to 12,000 miles a year were getting an average car insurance quote of £576.42.
This highlights how lower mileage drivers can end up paying an average of £232.59 more a year than higher mileage drivers if they chose a more traditional car insurance policy.
Pay-per-miles car insurance policies are designed to help low mileage drivers save on their car insurance by only paying for the miles they actually do.
By Miles have also analysed the 2017 MoT figures from The Department for Transport, finding that the average car in the UK drove 7,134 miles a year – so based on the number of cars on UK roads, this means that around 19 million cars in the UK drove this average mileage or less.MoneySuperMarket data from January – March 2018 found that drivers aged 17 – 24 could save an average of £363.25 a year with a pay-how-you-drive telematics car insurance policy.
Can you get temporary pay-as-you-go car insurance?
Most pay-per-mile car insurers won’t offer temporary or short-term car insurance because of the extra costs around retrieving the telematics box and refurbishing it.
Telematics devices can be used with short-term hire and fleet vehicles to help businesses save money.
Depending on the insurer and the costs of fitting the black box, a telematics device may not make the most sense if you’re looking to insure a car for social use in the short-term. You might not see the savings from driving with a telematics box until your policy is up for renewal.
Pay-as-you-go car insurance for young drivers
MoneySuperMarket and By Miles analysed MoneySuperMarket data for drivers aged 25 – 29 looking for standard car insurance quotes from 1 July 2018 to 30 September 2018. The average cheapest quote for 25 – 29 year-old drivers looking to drive 5,000 – 6,000 miles a year was £971, compared to £736 for 25 – 29 year-olds looking to drive 11,000 – 12,000 miles a year.
This suggests that younger drivers could also save money on their car insurance by switching to a pay-per-mile or pay-how-you-drive policy.
Some pay-per-mile insurers will only offer cover for drivers who have been driving for at least two years, and they may only cover drivers that are over 25 years old.
Pay-as-you-go car insurance for learner drivers
Pay-as-you-go car insurance policies (including both pay-per-mile and pay-how-you-drive) rarely cover learner drivers.
Pay-as-you-go car insurance for delivery drivers
Some pay-per-mile car insurance providers may offer policies designed for delivery drivers. Many will exclude cover when driving for commercial reasons (this includes making commercial deliveries and driving passengers who are paying you).
Businesses with a fleet of van delivery drivers may find a telematics box can help them save money as a business. The tracking device helps drivers optimise routes for cost-efficiency, reduce maintenance costs by making sure drivers aren’t braking or accelerating harshly, track driver and package locations and more.
Pay per mile insurance does not track your speed or driving style, just your distance.
Things to keep in mind…
- Most pay-per-mile insurers only cover cars at the moment, so you won’t be able to get pay-as-you-go insurance for your van, motorbike, motorhome and other vehicle types just yet
- If you drive more than 7,000 miles a year, a pay-per-mile policy may not be the best one for you – shopping around and comparing standard and non-standard policies can help you find the right level of cover for you, for the best price
- As with any policy, if you don’t meet certain conditions e.g. if you don’t pay your monthly car insurance bill on time your insurer may stop your cover
- Standard policy exclusions will normally also apply (you will likely only be able to claim for theft if your car was properly locked without the key inside, for example). It’s always a good idea to read the policy documents in full before taking out cover so you know what will and won’t be covered
Comparing pay-as-you-go car insurance quotes
Over 50% of car insurance quote searches on MoneySuperMarket from 1 July 2018 to 30 September 2018 were for motorists who said they’d drive under 7,000 miles a year.
If you drive under 7,000 miles a year, or you’re a safer driver who typically pays a high amount for car insurance, you could save money with a pay-per-mile or telematics pay-how-you-drive policy.
Enter details about your car, your driving history, your predicted annual mileage and more to compare quotes. Find the car insurance policy that gives you the right level of cover, at a price that suits.