Pay-as-you-go car insurance

What is pay-as-you-go car insurance?

Pay-as-you-go car insurance is a type of car cover where the cost is linked to your driving use rather than based on an estimated annual mileage. In other words, driving fewer miles could reduce what you pay.

The most common version is pay-per-mile insurance, where you pay a fixed amount for the policy plus a charge for the miles you drive. Some policies use a device, app or special technology connected to your car to record your mileage. Others may ask you to submit regular readings.

It's part of a group of usage-based insurance products that price the cover using real driving information such as mileage, journey times or driving behaviour.

How does pay-as-you-go insurance for your car work?

Most policies follow one of two models. The first is mileage-based pricing. You pay a core premium to cover the car while it's insured, then a separate mileage rate for the distance you drive.

For instance, a driver who uses their car for weekend errands and occasional longer trips may pay less than someone doing a long daily commute if all other risk factors are similar.

The second model is telematics insurance, sometimes called black box insurance or smart insurance. This uses technology to collect information about your driving.

Depending on the policy, it may record mileage, speed, braking, cornering, time of day and the types of roads used. The insurer could use this information when calculating your premium, assessing risk or setting future premiums.

Might pay-as-you-go car insurance suit you?

Pay-as-you-go car insurance may be worth considering if you drive much less than a typical driver over a year, or your mileage changes from month to month.

So it can be particularly handy for people who work from home, retired drivers, city drivers who mostly use public transport, students who only drive during holidays, or households with a second car that's used occasionally.

That said, it's not automatically the cheapest choice for everyone. If you regularly drive long distances, travel late at night or prefer not to share driving data, a standard annual policy may be better.

Also some pay-per-mile insurers set a maximum annual mileage or charge a different rate once you exceed a certain mileage, which may affect your choice.

For a wider look at the factors that influence premiums, the AA's guide to getting cheaper car insurance explains practical ways to manage costs.

Pay-as-you-go car insurance compared with standard cover

The main advantage of pay-as-you-go car insurance in the UK is flexibility. If you drive less it can make costs feel more transparent, especially where billing shows a clear mileage charge.

On the other hand, a standard policy can be simpler. You set an estimated mileage, choose an annual premium, and know broadly what you'll pay over the year. That can work well if your driving pattern is predictable.

Standard cover may also suit people who don't want a device in the car or an app recording trips. If you'd prefer an annual policy, you can get a car insurance quote here.

If you do opt for pay-as-you-go car insurance and your policy uses a device or app, follow the set-up instructions and keep it working. If mileage readings are required, provide them on time.

If your circumstances change – for example, you start commuting again, move house or use the car for business – tell your insurer. As with any car insurance, incorrect information can affect claims or even the validity of the cover.