Where To Get The Best Pay-As-You-Go Car Insurance Deal?

James Rodriguez James Rodriguez updated on July 23, 2020

It’s no great secret that car insurance is an expensive and intimidating affair.

With so many different kinds of coverage, payment options and extras available on the market, you may find yourself lost in a maze of options, without much clarity on what to choose without burning a hole in your pockets.

But what if we told you that thanks to technology, there are now a variety of pay as you go insurance options that can help you to drastically cut down on the cost of car insurance.

This article takes a look at pay-as-you-go car insurance which allows you to only pay for what you need.

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

If you’ve ever felt that the cost of car insurance is simply not fair, pay-as-you-go insurance could be the solution. It bases the cost of your premiums on how much you drive rather than using unfair, statistical assumptions about the level of risk you pose as a driver.

Depending on the type of pas-as-you-go policy you choose, this could be calculated either in terms of the number of miles or the number of hours driven in a month.

Thanks to a small telematics unit installed in your car, your insurer is able to receive real-time information and statistics about your driving and mileage every time you are behind the wheel. This enables them to price your premiums more accurately. The less your mileage, the lower your chances of getting into an accident, which in turn directly results in lower premiums.

While this kind of insurance is most suited to young, inexperienced drivers who have little or no driving history to prove their credentials to the insurer, it can also help to monitor your mileage to be able to keep it down to a minimum.

What’s more is that if you prove yourself to be a safe and reliable driver over time, you could be rewarded with lower premiums or even discounts.

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

Pay-as-you-go insurance is designed to give your insurer a more precise understanding of how and how much you drive enabling them to price their premiums more accurately for your particular situation. 

As said above, it relies on telematics, which is the installation of a device in your vehicle that monitors every aspect of your driving such as acceleration, speed, braking, cornering, mileage, as well as your location and sends this information back to the insurer. 

A lot depends on the kind of telematics device you choose. For example, if you choose to install a system that only monitors your mileage, it means that your insurer will only receive this information and will be able to calculate your premiums based on the amount of time you spend behind the wheel. The general rule is the less you drive, the lower your premiums.

Alternatively, young or new drivers who have no previous driving history could opt for more comprehensive telematics devices which monitor all aspects of their driving. This is a good way for them to be able to prove their safe driving skills to the insurer, thereby pushing down the price of their premiums. 

What are the best pay-as-you-go insurances?

In our opinion, the best kind of pay-as-you-go insurance is usually Comprehensive. Not only does it provide the highest level of cover, it could cost much less than Third Party or Third Party Fire and Theft, especially if you are a young driver.

We compared some quotes from some of the best pay as you go insurance policies in the UK for young drivers living in the Greater London area, driving eco cars under a fully comprehensive policy:

Insurance providerAnnual premium with telematics
logo hastings direct smart miles£2296.63
logo girls drive better£2461.29
logo ingenie£2486.01
logo sky insurance£2963.23
o2 box on board£2975.36
logo rac insurance 1£3006.69
Pay-as-you-go car insurances comparison

According to these quotes, Hastings Direct Smart Miles had the lowest quote of £2296.63 whereas the highest was by RAC Black Box at £3006.69.

Compare more car insurance policies with our online price comparison tool. It’s free and only takes a few minutes to find and compare quotes from top insurers in the UK.

What types of pay-as-you-go insurance are there?

Typically, pay-as-you-drive insurance is calculated based on the number of miles driven per month. However, it is also possible to base your premiums on the number of hours driven as well as other factors measured using a telematics device installed in your car. 

Let’s look at these options more closely:

Paying per miles

Pay per mile car insurance is the most common type of pay as you go insurance available. The cost of insurance is calculated based on the number of miles you drive in a month. This is different from ordinary insurance in that the insurer is able to monitor your mileage in real time rather than depending on your estimation of your mileage at the start of the policy. This allows for far greater accuracy while calculating your premiums. Paying per mile is a good option for city drivers who don’t drive long distances on a regular basis but end up spending a considerable amount of time behind the wheel because of traffic snarls or congestion commonly experienced in dense cities.

Paying per hour

Pay per hour car insurance is different from pay per mile in that it calculates your premiums based on the number of hours spent driving rather than the number of miles driven per month. It’s a good option for drivers who cover long distances on a regular basis but don’t necessarily spend a lot of time behind the wheel.

For example, people who live in the countryside might have to drive much longer distances every day to drop their children to school than if they lived in a town or city. But the time taken to cover this distance could possibly be half the time that a city dweller might take because of traffic.

Competence based payment

Known simply as telematics insurance or black box insurance, this type of pay as you go policy is the most comprehensive of the three. This type of insurance uses a telematics device installed in your car to record not only your mileage and driving time information, but also various other statistics such as your acceleration, breaking and reaction time, adherence to speed limits, geolocation, etc. This allows the insurer to calculate your premiums based on your overall competency, safety and efficiency behind the wheel. 

All three types of pay as you go car insurance use telematics technology to transmit information about your driving to your insurer. This information is then used by the insurer to calculate a driving score for every driver. The higher your score, the lower your premiums.

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

Much like standard car insurance, pay as you drive insurance lets you choose from the three broad levels of cover: 

  • Third Party - This is the minimum level of cover required by law. It only covers you for damage caused to other people’s vehicles, property or person and does not cover any of your personal losses during an accident that was your fault. If the accident was not your fault, any losses suffered by you would be covered by the third party policy of the responsible driver.
  • Third Party Fire and Theft - This is the next level of cover you can get. While covering all third party losses it also offers additional cover to you if your car is stolen or damaged in a fire. 
  • Fully Comprehensive - This is the highest level of cover you can take out for your car. It provides cover for everything under Third Party and Third Party Fire and Theft as well as additional cover for you and your vehicle such as Breakdown Cover, Collision Cover, Key Loss Cover, Courtesy Cars as well as a host of tailor made coverage options to suit your needs. 

Will pay as you go insurance save me money?

A common misconception most people tend to have is that the lower the level of cover, the lower the cost of insurance, when in fact, the opposite is true. 

We compared the annual average cost of insurance for young drivers between the ages of 17 and 20 under each level of cover and this is what we found.

  • The average premium for a comprehensive policy without telematics was just under £1600 while the same with telematics was around £1100.
  • Telematics didn’t seem to have a great effect on the price of Third Party Fire and Theft policies as the average premium with or without telematics was nearly the same at a little under £2000. 
  • Similarly, the inclusion of telematics did not drastically change the the average premium for a third party only policy which costs around £2,650 without telematics and roughly £2,500 with telematics. That’s a saving of around £150 per year.

Comprehensive policies are now proving to be a cheaper and more holistic solution than the other two levels of cover because it is assumed that those people who opt for lower levels of cover pose a higher risk to insurers. Check out our article ‘What are the best Comprehensive Car Insurances’ to learn more about comprehensive car insurance and how it could possibly be the best solution for you.

For young drivers, combining comprehensive insurance with telematics or pay as you drive car insurance could be the most viable and cost effective solution.

What extras can you get with pay as you go car insurance in the UK?

Every insurer has their own set of extra coverage options that you can take out with your pay-as-you-go policy. 

Typically, under a fully comprehensive pay-as-you-go policy you should be able to add extra cover such as:

  • Legal Cover - Some insurers provide the option of covering legal expenses in the event of a claim.
  • Courtesy Car - This covers the cost of a replacement vehicle while yours is being repaired. It can often be found clubbed with certain breakdown cover policies. 
  • Driving Abroad - Usually, your standard car insurance policy only covers you if you are driving within the UK. However, many insurers provide the option of coverage while driving in the EU or certain other countries.
  • Breakdown Cover - Depending on the level of cover you choose, this covers the cost of roadside assistance by a mechanic or garage repairs in the event of a breakdown on the road.
  • Key Loss Cover - This covers the cost of replacing lost or stolen car keys.
  • Additional Driver Cover - Many insurers let you add additional or named drivers to your policy. This could effectively lower your premiums if the additional driver is experienced and has a clean driving record. However, adding a young or convicted driver could have the opposite effect on your premiums. 
  • Multi-car Cover - If you have more than one car, it might be cheaper to opt for a single, multi-car policy rather than take out separate policies for each vehicle.
  • Stolen Property - This covers the loss of stolen property such as car stereos, navigation devices, laptops and other valuables that you might have left in your car. It is important to know that your ability to claim compensation for stolen property will depend a lot on the security and storage features of your car.
  • Personal Accident Cover - Under this type of extra cover you may be entitled to a lump sum pay out if you are injured or pass away as a result of a road accident involving your vehicle.

What is the cost of pay as you go insurance in the uk?

Typically, the cost of pay as you go car insurance is calculated by combining two different rates:

  • Fixed or stationary rate -  Most pay-as-you-go car insurance policies charge a fixed monthly or annual rate for the period of time when your car is stationary or unused
  • Usage based rate - Depending on whether your opt for a pay-per-mile or pay-per-hour policy, the insurer charges a certain rate per mile or per hour. If you don’t drive very frequently, a pay-per-mile policy could be a cheaper option. Alternatively, if you usually cover long distances, a pay-per-hour policy could be the cheaper of the two. 

Apart from this, you can also opt for short term insurance. This type of cover charges you only for the number of days or weeks that you need to drive rather than for the full year. Your premiums are calculated based on the coverage period that you specify at the start of your policy, with the option of renewal if necessary.

Telematics insurance on the other hand, takes into account a few more factors such as your driving habits, mileage and location information to calculate the cost of your premium. You could see significantly lower premiums by driving safely, following traffic rules as well as for avoiding peak traffic hours.

Interestingly, telematics policies are most beneficial for drivers under the age of 30 but become more expensive for older drivers. The following table shows the difference between the average annual cost of insurance with and without telematics for drivers of different age groups.

Age groupAverage premium without telematicsAverage premium with telematics
65 plus£300£530
Average car insurance premiums by age group depending on telematics or not

Who needs pay-as-you-go car insurance?

Pay-as-you-go car insurance can be taken out by anyone but is designed primarily to benefit: 

  • New drivers - Because new drivers do not have a driving history, there are no hard facts or data available for them to be able to prove their conscientiousness and safe driving skills to insurers.  Another challenge this age group faces is the extremely high cost of car insurance due to the fact that a majority of road accidents in the UK involve young drivers. The problem with the standard car insurance pricing system is that it applies a blanket assumption that all young drivers are irresponsible and risky behind the wheel. This is why pay-as-you-go car insurance is the best solution for them to prove themselves and be rewarded for their safety behind the wheel with lower insurance premiums.
  • Occasional drivers - Occasional drivers who don’t drive their car on a regular basis could also benefit from pay-as-you-go car insurance. This is because it is difficult for occasional drivers to accurately predict their mileage at the start of the policy. By opting to pay per mile or pay per hour, these drivers could potentially reduce the overall cost of their car insurance premiums.

What is the difference between temporary car insurance and pay as you go?

Temporary or short term car insurance is different from pay-as-you-go in that it only covers you for a fixed period of time and doesn’t usually involve the use of telematics.

Short term car insurance premiums are calculated based on a predetermined number of miles or period of time that you expect to be driving. Different insurers offer different short-term coverage options ranging from a couple of hours to a couple of months but the most commonly found short term policies are known to have a maximum duration of 28 days.

Pay as you go monthly car insurance in contrast, is a more permanent solution and uses the information relayed from a telematics device installed in your car to the insurer to be able to calculate the cost of insurance based on your mileage or time spent driving as well as other factors.

Can pay-as-you-go insurance help save you money?

Yes it can, provided you can manage to keep your mileage down and avoid driving during peak hours as much as possible. 

Also, if you are a young or new driver you will be able to save more with a pay-as-you-go or telematics policy than you would if you were an experienced driver with a few years of driving experience. 

However, pay-as-you-go car insurance may cost significantly more than a regular insurance policy if you end up needing to drive long distances or for long hours on a regular basis.  

To find the best pay as you go car insurance policies that match your requirements, try our online price comparison tool.