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Pay as you go car insurance explained

Pay as you go car insurance, or telematics, can help younger drivers cut the cost of their premiums. Read on to find out how it works, as well as the pros and cons.

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What is pay as you go car insurance? 

Pay as you go car insurance monitors how you drive, either through how often you drive or the way you drive, and uses this to determine how much you pay for your car insurance premiums.

Also sometimes known as telematics insurance, pay as you go cover has often been associated with black box insurance policies. However, innovative companies have begun to offer ‘true’ pay as you go car insurance cover, which we explain more about later.

As technology advances, there are a number of different charging plans, which might be helpful if you don’t use your car all the time.

Who can benefit from pay as you go insurance?

Pay as you go car insurance won’t be right for everyone. However, with statistics showing that young drivers are more likely to have accidents and make insurance claims than any other age group, pay as you go insurance can help lower costs for this group of motorists – particularly policies that monitor driving habits and behaviour.

Drivers using their cars outside peak traffic hours could also save on their insurance with pay as you go, as some insurers charge less for miles driven when the roads are emptier and accidents less likely.

Those who have driving or criminal convictions who usually face higher premiums may also benefit. 

What’s the difference between temporary car insurance and pay as you go?

Temporary insurance only lasts for a set period of time. This could be hourly or more often it's between 1 and 28 days. It can be a great option for those who are borrowing a car or taking a new car home from their seller.

Pay as you go insurance, however, can be useful if you need long-term cover.

You can compare temporary car insurance with our partner money.co.uk below:

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What are the different types of pay as you go car insurance?

The following different types of car insurance policy could all be considered ‘pay as you go’, but only some of these offer ‘true’ pay as you go capability:

  • Black box (or telematics) policies

  • Pay per mile car insurance

  • Pay per hour car insurance

Black box car insurance – or pay how you drive insurance

The nickname black box was given to refer to the small device insurers install in the policyholder’s car to measure driving behaviour. Although there are now many types of black box or telematics insurance policies that do not use this device, the name is shorthand for any programme that monitors or records your driving style.

It either works by using the small device, or by using an app downloaded to your smartphone. The box or app then uses satellite technology to track mileage.

Normally, drivers are charged a set amount per year and allowed to drive a certain number of miles before being charged extra. Pay as you go insurers allow you to top up in bundles of miles which you can roll over to the following year if unused.

Many telematics boxes also track:

  • Acceleration

  • Braking

  • Cornering

  • How often you drive

  • Where you drive

  • What time of the day or night you drive

Insurers take these factors into account when working out the cost of premiums. With most policies you can also monitor your driving behaviour online or via the app, and some insurers will offer rewards and discounts for drivers that demonstrate safe behaviour on the roads.

Pay per mile car insurance

While some black box policies are based on the number of miles you drive, new technology is emerging that allows you to truly pay as you drive.

By Miles is the first insurer to offer this type of pay as you go cover in the UK. The policy is based on a monthly flat rate to cover your car while it's not in use, plus a per-mile rate for the exact mileage you cover.

Mileage is measured by a Miles Tracker than plugs into your car, combined with an app on your mobile phone. At the end of the month you are billed for the miles you drive, as well as your monthly flat rate.

This type of 'true' pay as you go car insurance policy could be beneficial for drivers that don't use their car on a regular basis, or those that use their car more regularly but only for short trips.

Pay per hour car insurance

You can also take out pay as you go car insurance based on how much time you spend driving (rather than mileage). Again, there is a usually a flat rate to pay to cover your car while it’s stationary.

How much you pay for the remainder of your premium will depend on how much you drive – your insurer will track this data using a black box or plug and drive device and you can usually check via the app. 

Advantages and disadvantages of pay as you go insurance

To work out which type of insurance is right for you, below are the pros and cons of pay as you go cover:


  • It can be a great way to save money if you don’t drive much

  • If you're a young driver, you may find it cheaper than traditional car insurance

  • You can cancel at any time, providing you give notice, and there are usually no fees to pay


  • If you drive a high number of miles each year, you could end up paying more than you would with a traditional policy

  • You may be limited on the time of day you can drive

  • If your driving habits change, for example, you get a new job and have a longer commute, your insurance costs could increase

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