A guide to pay as you go insurance

Drivers in the UK have several coverage options available to them – and one of them is pay-as-you-go car insurance. 

Premiums for drivers can vary on a wide range of factors, and finding the right deal for you can save you a surprising amount of money.  

In this guide we cover what is included in pay-as-you-go insurance, how it works, and what drivers should consider before agreeing to it.

What is pay as you go insurance? 

Pay-as-you-go insurance (PAYG) is a type of car insurance where the premiums are based on how much you drive rather than a fixed annual amount.  

This type of coverage is typically used by people who drive less frequently, as it can offer savings over traditional car insurance policies – while still keeping you protected. 

Insurers often provide this coverage option to:  

• Learner drivers
• Retired people
• Students

Typically, there are two pay as you go car insurance options: 

• Pay-per-mile insurance includes a base monthly rate, along with an additional charge for each mile driven. The more miles travelled, the higher your premium will be
• Usage-based insurance uses a black box or telematics device to monitor driving behaviour, including factors such as hard braking and rapid acceleration. If your car is deemed to be driven safely, the policy holder could receive lower premiums as a reward in the future

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

It is a legal requirement to have car insurance in the UK – so getting the correct coverage as a driver is imperative. 

With pay-as-you-go insurance, there is typically a small base fee for maintaining the insurance policy. This fee covers the essential costs of having insurance in place, regardless of how much you drive. 

After this, a driver is charged a per-mile rate for the distance they travel. This can vary depending on the insurer and driving habits. 

Some insurers will provide a device or app to track the number of miles you cover – and the style of driving. This can be through a plug-in device or through smartphone apps that monitor mileage. 

In most cases, the monthly premiums will adjust based on the number of miles driven. If a driver has travelled fewer miles than usual, the premium will be lower. If they have driven more, it will increase accordingly. 

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Pay-as-you-go car insurance for learner drivers 

Pay-as-you-go car insurance for learner drivers allows them to pay based on how much they drive - which offers flexibility and affordability.  

This type of insurance is ideal for learners who may not be driving frequently, as premiums are typically lower compared to traditional plans. 

Normally these types of insurance are only available for the short term. 

With pay-as-you-go insurance, learner drivers can adjust their coverage depending on their driving habits, making it ideal for those who are still building their experience behind the wheel. 

What are the benefits of pay-as-you-go car insurance? 

Positives of pay-as-you-go car insurance include being cost effective for some drivers, while offering the flexibility to only pay for the insurance coverage they actually use. 

Drivers with PAYG insurance will likely be able to cancel their policy at any time with minimum notice period. 

Lower driving mileage also reduces a driver’s carbon footprint, and some insurers may offer discounts or incentives for eco-friendly driving habits. 

What should drivers be aware of before buying pay-as-you-go car insurance? 

Despite its positives, drivers should also be aware of the limitations that come with pay-as-you-go car insurance. 

If a driver uses the vehicle regularly, then this model might not be as cost-effective as traditional insurance, where they pay a fixed amount regardless of usage. 

Due to the nature of PAYG car insurance, a device may need to be fitted to the vehicle. Some people may find it invasive to have their driving monitored through tracking devices or apps. 

An important consideration is that not all insurers offer pay-as-you-go options.