Is pay-as-you-go insurance the right cover for you?

pay as you go insurance
Low mileage drivers should look at pay-as-you-go insurance (Picture iStock/Kameleon007)

You might well use pay-as-you-go for your mobile phone. It does after all seem fair enough to only pay for what you use. So what about pay-as-you-go car insurance? It’s becoming increasingly popular with drivers and according to comparison site Compare the Market, a fifth of car owners could save money by insuring in this way.

How does pay-as-you-go insurance work?

With regular car insurance, the driver estimates the number of miles they cover over the year. Doing it this way means you pay for insurance even when you’re not driving.

With pay as you go, insurers charge for the number of miles drivers cover, or the amount of time the car is on the road. The car owner pays their insurer a fixed monthly fee. An additional sum for every mile they’ve covered is then added at the end of every month.

The policies use what’s known as a telematics unit or black box inside the car. These devices plug into the car’s on-board diagnostics system. They use GPS to track the miles the car covers. The device then reports these to the insurance company. The driver doesn’t have to do anything.

Who does pay as you go work for?

This kind of insurance really suits drivers or cars who don’t do many miles. This is because insurers charge their customers according to the risk they represent. The less time you’re on the road, the less chance you have of being in an incident and the less risk you represent to the insurer.

According to insurance comparison site GoCompare, anyone who covers less than 6,000 to 7,500 miles a year would benefit from such a policy. And with MOT data showing that the average mileage of each car in the country is now below 7,000, that’s millions of car owners.

They might be families’ second cars that only do a small number of miles every year because there’s a main car for most journeys. It might be people who used to do a long commute but post-pandemic have retired or now work from home. Or it might be students who don’t use their car much during term time.

Drive every day or cover long distances regularly and chances are, pay as you go won’t suit you.

Are there different types of pay as you go insurance?

Yes. Some policies charge you according to how many miles you do, others charge by the number of hours you drive every month. The less time you spend driving, the less money you’ll pay on insurance.

pay as you go insurance
Motoring costs are rising. Pay as you go could be a way of cutting them (Picture iStock/krisanapong_detraphiphat)

Are there any drivers it won’t work for?

Obviously high-mileage drivers aren’t going to benefit from pay as you go. And neither will drivers whose circumstances change during the term of their policy.

Drivers who generally do a low mileage but possibly cover thousands of miles when they go on holiday in the summer months might find wildly fluctuating charges aren’t for them either.

Are there any types of insurance not covered?

No. Pay as you go is available for third-party, third-party fire and theft and comprehensive cover. But some insurers only provide pay-as-you-go cover with comprehensive policies. There may also be age limits. Some insurers will only offer pay as you go for drivers who are 21 or over. Others insist the main driver must be 25 or over.

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