Pay-as-you-go car insurance explained

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.

Other types of pay-as-you-go car insurance

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:

• Pay for each mile you drive: arguably the purest form of pay-as-you-go insurance, this is where you only pay for each mile you drive, based on a tracking device in your car. You’ll be charged a per-mile rate and may also need to pay an upfront or monthly fee to cover your car while it’s parked
• Pay for a certain number of miles: with this form of pay-per-mile insurance, you start your policy with an annual mileage allowance, say 500 or 1,000 miles. You can then top up your allowance if you think you’re going to exceed your limit

Essentially, with pay-as-you-go car insurance, the fewer miles you drive, the less you’ll pay for your cover. 

Do I need a black box for pay-per-mile car insurance?

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:

• Plug-in or stick-on device: this is the most common type of tracker and should be easy to self-install. It’s a small device that either plugs into a port in your car or sticks to your windscreen and connects to your provider’s app
• Connection to milometer: newer cars may be able to connect their milometer or odometer directly to the provider’s tracking app, doing away with the need for a plug-in or stick-on device 

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. 

Will my pay-per-mile insurance policy come with an app?

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:

• Third-party liability: you’ll be covered if you injure or accidentally kill a third party or damage their property
• Fire damage: you can make a claim if your car is damaged in a fire
• Theft: you can claim if your car is stolen or damaged in an attempted theft 
• Accidental damage: if you get into a motor accident, you’ll be able to claim for the damage to your car

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:

• Personal details, such as your age and address
• Driving history, including your no-claims bonus and any convictions
• Car details, such as its make, model and security features

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:

• Younger drivers: if you’re a younger driver and struggling to find an affordable car insurance quote, you could reduce how much you drive to fit a pay-as-you-go policy
• Students: if you only drive when you’re home from university, you could look into pay-per-mile cover
• Public transport users: if you live in a city where you mainly get about using public transport but still want to drive on occasion, pay-per-mile insurance could be perfect
• People with second cars: if you have a second car that often sits in your driveway, pay-as-you-go insurance might be a good fit for the times you need to take it for a spin
• People who work from home: if you don’t have a commute and only use your car at weekends, you may suit pay-as-you-go insurance
• Retirees: similarly, if you’ve retired and no longer have a commute, pay-per-mile cover could be appealing
• Older drivers: as you get older, there’s a good chance you’ll start to drive less, meaning you may have no need for an annual policy – that’s where pay-per-mile cover can be ideal

As with any form of specialised car insurance, it’s important to weigh up the pros and cons before taking out a policy:

Advantages of pay-as-you-go car insurance

• Instead of getting a premium based on mileage estimates, your policy will directly reflect how much you’re on the road
• You can get cheaper car insurance if you’re a low-mileage or infrequent driver
• You can insure a second car you don’t use very often without paying an annual premium
• You can factor in how much you drive to any financial budgeting you need to do

Disadvantages of pay-as-you-go car insurance

• It isn’t suitable for high-mileage motorists, such as people with a commute or commercial drivers
• You won’t have a fixed payment each month, which can make budgeting more difficult
• There are fewer pay-as-you-go insurance providers to choose from when compared to standard car insurance

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:

• Breakdown cover: if you’d need assistance were you to get stuck at the side of the road, you could consider adding breakdown cover to your car insurance
• Motor legal protection: this add-on typically provides you with up to £100,000 in legal expenses cover to pursue uninsured losses following a non-fault accident
• No-claims discount protection: if you meet the eligibility criteria, you can take out no-claims bonus protection, allowing you a set number of claims before your discount is affected
• Courtesy car cover: if your pay-as-you-go policy doesn’t include it as standard, you might want to consider courtesy car cover if you’d need a temporary replacement vehicle in the event of an accident