Pay-as-you-go car insurance monitors your driving habits to determine how much you pay for your car insurance premiums. Might a pay-as-you-go policy suit your driving life – and save you money?
Sometimes referred to as telematics insurance, pay-as-you-go insurance is often associated with ‘black box’ insurance policies. But some innovative insurance companies now offer ‘true’ pay-as-you-go insurance cover, charging you per mile.
As technology advances, there are a number of different charging plans. These might be helpful if you don’t use your car that much, but still need to drive every so often.
Some refer to pay-as-you-go cover with the acronym PAYG – or usage-based car insurance. It’s also a business model that’s easy to understand and widely liked. Either way, it’s a praiseworthy attempt by insurers to charge by how much people use their cars, rather than charging a flat annual premium
Pay-as-you-go car insurance won’t suit all. However there are several good reasons why a pay-as-you-go policy deserves consideration, especially if you haven’t had time to build up your driving history.
Here are three reasons to consider pay-as-you-go:
Lower costs - this cover can help lower costs by monitoring driving habits and driving behaviour.
Rewards off peak driving - Drivers using their cars outside peak traffic hours could also save on their insurance, as some insurers charge less for miles driven when the roads are emptier and accidents less likely.
Those who have driving or criminal convictions usually face higher premiums, they may also be able to benefit from this type of cover.
Temporary insurance only lasts for a set period of time. This period of time could be hourly, but more often it's between one and 28 days. It can be a great option for those who are borrowing a car. Or taking a newly-bought car home back from their seller.
Pay-as-you-go insurance, however, can be useful if you need longer term cover but like the idea of your driving habits being carefully evaluated – which means you may pay less overall. Cautious drivers generally stand to gain more than less-than-careful drivers (though this is not guaranteed).
The following types of pay-as-you-go car insurance policy could all be considered ‘pay-as-you-go’ – but only some 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 term ‘black box’ is short-hand for a small device insurers install in a policyholder’s car to measure driving behaviour.
It’s often with the help of a SIM card inserted into a ‘black box’. This might contain a motion sensor, GPS tech and software to transmit your driving data back to your insurer.
This box is usually attached to the engine bay of your car, or perhaps with the help of an app downloaded to your smartphone
The box or app uses satellite technology to track your mileage and how you drive
Normally, drivers are charged a set amount per year, and allowed to drive a certain number of miles before being charged extra
Some pay-as-you-go insurers allow you to top up in bundles of miles that you can roll over to the following year if unused – this can come in very handy in a health pandemic, for example.
A black box will usually measure
acceleration and braking
how often you drive
whether you take journey breaks
where you drive
what time of the day or night you are out on the road
your total mileage in any given time period
Most pay-as-you-go car insurance policies monitor your driving behaviour online, or via an app. Some insurers will offer rewards and discounts for drivers that demonstrate safe road behaviour. Remember, insurers use experts with data and software that can help them predict your risk level.
Pay-per-mile car insurance is one example. 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. It’s 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 do cover.
Mileage is measured by a Miles Tracker that plugs into your car, combined with an app on your mobile phone. At the end of the month you‘re 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 good for drivers that don't use their car on a regular basis.
Or those that use their car regularly but only for short trips.
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 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 – and your insurer will track this data using a black box, or plug-and-drive device, which you can usually follow via an app.
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 – though always double-check
Older drivers can also benefit from pay-as-you-go cover, especially if their car use is infrequent
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