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What is pay as you go car insurance?
If you don’t drive very often, pay as you go (PAYG) car insurance can help you avoid high annual premiums. That said, PAYG policies aren’t suitable for all drivers and plans may have limitations and exclusions based on your age or the value of your car.
Here, we take a look at pay as you go or pay by mile insurance in more detail, including its pros and cons, and which drivers might benefit the most from these types of policy.
- What is pay as you go (PAYG) car insurance?
- How does pay by mile car insurance work?
- What does PAYG car insurance cover?
- What are the pros and cons of pay as you go car insurance?
- Who offers pay as you go car insurance?
- Is pay as you go insurance worth it?
What is pay as you go (PAYG) car insurance?
Instead of buying annual car insurance, pay as you go policies charge you for each mile you drive. You’ll need to bear in mind that some insurers only offer pay as you go as a comprehensive policy, so if you’re only looking for third party cover, your choice of provider may be limited.
How does pay by mile car insurance work?
You’ll usually be given a small telematics device to record the number of miles you drive. These can be easily fitted yourself, often simply by plugging it into the cigarette lighter (the 12V port). Some insurers use devices that connect to an app on your smartphone.
The telematics device or tag as many insurers call them (because they’re so small), will then keep track of your mileage and you’ll be charged accordingly.
How much will I pay?
Your insurer will charge you a fixed rate per mile. The amount is often capped so you’ll never pay more than a certain amount each day.
As well as paying for the miles you drive, you’ll also need to pay for the time your car is not being used, this is usually taken as a monthly fee.
Some insurers also charge an upfront administration fee, which may be refundable after a few months.
Can new drivers buy car insurance by the mile?
This will depend on the insurer. Some offer policies to new drivers and will also give you a choice of using your own car or a parent’s car. Others will only offer PAYG plans to drivers after a minimum number of years behind the wheel or with a couple of years of no claims.
What does PAYG car insurance cover?
Policies cover the same risks as standard annual car insurance, including damage caused in an accident, theft and vandalism. Just remember that PAYG plans are often only sold as comprehensive policies. This means you’ll be covered if you cause damage to someone else’s car and property, as well as your own.
Delivery drivers sometimes use a form of PAYG hire & reward insurance to cover their delivery driving—hire & reward is a form of commercial cover needed for a driver making paid deliveries.
Can I add additional features to pay as you go insurance?
As with other policies, insurers will usually offer a range of extras which you can add on for a fee. Options can include:
- Breakdown cover – providing roadside assistance if you break down while you’re out and about.
- Courtesy car – a replacement car if yours needs to be repaired after an accident.
- Legal expenses – covers any professional fees and legal costs should you need to go to court.
- Windscreen and glass cover – provides a replacement if your windscreen is damaged beyond repair.
What are the pros and cons of pay as you go car insurance?
While paying for your car insurance by the mile has its benefits, it’s not suitable for all drivers and pros and cons include:
Pros
- Save money – the average number of miles covered by drivers in the UK is 6,600 per year. If you drive fewer miles, PAYG car insurance could work out cheaper.
- Only pay for the miles you drive – standard annual car insurance is based on an estimation of the miles you drive each year. With PAYG, there’s no guesswork as you only pay for the miles you do.
- Budgeting – if you’re on a tight budget, you may decide to forgo the car for a few trips or limit the miles you drive to save money.
- Good for the environment – paying by the mile could make you think twice about the journeys you need to do and reduce your car use.
- Minimal commitment – policies are generally very flexible so it’s usually easier to cancel PAYG cover compared to cancelling an annual policy. Nevertheless, check your terms as insurers set their own conditions so there may still be a cancellation fee and postage costs to return your telematics device.
Cons
- Can become expensive – if you find your mileage increasing, it can become considerably more expensive (for example, if you need to start commuting to work every day).
- Age limits – some insurers limit pay as you go policies by age, for example, Marmalade only offer PAYG insurance to drivers aged between 17 and 27 years old.
- Excludes some cars – policies may not be available for cars over a certain value or age.
- Limited choice of policy level – third party cover isn’t always available as an option and policies are typically sold as comprehensive only.
Is PAYG insurance the same as black box car insurance?
No, telematics (black box) car insurance is not the same as pay as you go cover. Although both types of policies use telematics technology, the device used for PAYG plans only record the number of miles you drive.
In contrast, the device used for telematics policies also monitor your driving, in particular, braking, acceleration, cornering and speed. This information is then used to calculate your premium—‘good’ drivers who stay within speed limits and drive smoothly should be rewarded with lower premiums.
Is pay as you go insurance the same as temporary car insurance?
Confusingly, pay as you go car insurance is sometimes used to describe temporary or pay by hour or day car insurance, but they aren’t quite the same.
PAYG insurance is aimed at drivers who cover considerably fewer miles than average, but who still need continuous cover in place. In other words, it’s an alternative to annual policies.
Temporary car insurance, however, is aimed at drivers who only need cover for a fixed period of time. This could be as little as 24 hours or a few weeks or months. Temporary car cover is aimed at drivers who may be borrowing a friend’s car for a short time or if several drivers need to be insured on a car for a one-off trip.
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Who offers pay as you go car insurance?
Pay as you go cover is available from a number of insurers which we’ve listed below. But don’t forget that some providers (such as GoShorty and Veygo) also use the term to describe temporary car insurance which is slightly different.
By Miles
By Miles, offers pay as you go insurance as a comprehensive policy. You’ll pay an annual fee upfront to cover the cost of your car when it’s not in use. You’ll then pay for the miles you’ve driven each month.
The policy caps mileage at 150 miles per day, so you won’t be charged for anything exceeding this. The policy also includes free no claims discount protection.
Depending on the age of your car, you may not even need a telematics device and newer cars can have information taken directly from its mileometer (you’ll need to give permission for this to happen).
JURNY
This pay as you go policy is also comprehensive. JURNY works slightly differently in that you pay for your miles in advance with costs deducted as you drive. You can then top-up your account to cover future miles (similar to how a PAYG phone works).
You’ll also need to pay a monthly fee to cover your car while it’s parked, and there’s also a £100 set-up fee which is refundable after six months.
JURNY caps mileage to 100 miles per day, so if you drive more than 100 miles in 24 hours, those additional miles will be free.
Marmalade
Marmalade’s pay per mile car insurance is limited to drivers aged between 17 and 27. It’s also aimed at drivers who are likely to cover less than 3,500 miles a year.
You’ll be able to use either your own or a parent’s car. The policy works in a similar way to JURNY’s in that you’ll buy your miles upfront and top-up as you go.
As the policy is targeted at younger drivers, Marmalade will also use data recorded to alter what you’re charged. So, if you’re considered a ‘safe’ driver, you’ll pay less per mile.
One Call
One Call’s pay as you drive car insurance, is offered as a comprehensive policy. You’ll pay an annual fee upfront to cover your car while it’s parked, after that you’ll pay for the miles you’ve driven each month. Policies also include free breakdown cover, windscreen cover, legal expenses and a courtesy car.
As well as monitoring the number of miles you drive, One Call will also collect data such as speed, cornering and braking (like a traditional telematics policy). However, they do say that this data will not be used when calculating what you pay, but it may be used if a claim is made with reports of dangerous or reckless driving. Note: One Call, despite their name, has moved customer service online, with no phone service.
RAC
The RAC’s pay by mile insurance is offered as a comprehensive policy. You’ll pay two premiums, the first is payable at the start of each month and covers your car when it’s parked (known as the parked premium).
The second premium (the mileage premium) is charged at the end of the month and covers the miles you driven. You’ll also need to pay a one-off activation fee (currently £50).
Is pay as you go insurance worth it?
If you only drive every now and again and cover less than 6,600 miles each year (the average for the UK), then pay as you go car insurance is an option to consider.
Remember that as well as your mileage, insurers will consider a range of other factors to work out your premium. This includes your age, where you live, the car you drive and what you do for a living. Depending on how these affect your premium, a standard annual policy may still offer better overall value. With that in mind, it’s important to compare all types of policies, rather than limit yourself to one.
Fundamentally, car insurance is about balancing your needs alongside your budget; focusing on cost alone could mean you end up compromising on cover. To help you get great value for money on your car insurance, we’ve put together these in-depth guides: