When is it cheaper to switch to pay-as-you go car insurance?

More drivers are opting for ‘pay-as-you-go’ car insurance policies as they try and reduce their mileage in order to keep costs down. 

Pay-per-mile insurance has spiked 125 per cent in popularity annually since the start of 2020, new research by Compare the Market shows. 

While-pay-as-you-go is best suited to those who don’t drive very often – or very far –  around a fifth of motorists could save money by swapping to a pay-by-mile policy instead of an annual car insurance policy, the comparison website says.

For those driving 2,000 miles per year or less, that saving could amount to nearly £150 – but anyone driving less than the UK average of around 7,500 miles per year could stand to save. 

Drivers could be paying more than they need to for their car insurance if they drive fewer than 7,000 miles a year, as new pay-as-you-go car insurance may work out cheaper

The increasing number of drivers choosing a pay-per-mile policy follows a recent survey from Compare the Market which found that half of motorists are making fewer journeys, while a third are using less fuel to help mitigate rising driving costs. 

Many motorists are now looking to cut down their mileage, as one in three drivers are worried that they won’t be able to cover the cost of driving in the coming weeks.

What is a pay-by-mile insurance and how does it work? 

Pay-by-mile policies are typically aimed at motorists who drive less than the nation’s average mileage each year. This stands at just below 7,500 miles. 

The policies are designed to be a fairer option for low mileage drivers because these motorists use their cars less often, and so are less likely to have an accident or make a claim. 

Pay-by-mile policies typically use a telematics device, also known as a black box, installed in your car to monitor how many miles you drive,

You’ll often find these black boxes in young driver insurance policies, as they can also track speed and when drivers make their journeys. They are known to reduce the cost of an average car insurance policy by hundreds of pounds a year. 

Because the black box tracks your mileage, you’ll only pay for the distance you have actually travelled.

The nation's average mileage dropped by nearly 15% during the Covid pandemic in 2020

The nation’s average mileage dropped by nearly 15% during the Covid pandemic in 2020

Who can benefit from a pay-as-you-go policy? 

Pay-by-mile car insurance policies are available to anyone, regardless of your car, but will typically only benefit drivers who travel less than 7,000 miles a year, or only use their car for personal use rather than commuting.

These policies could also appeal to drivers who are working from home more often following the Covid-19 pandemic, as more than two-thirds of motorists now drive less than 7,000 miles per year, according to MOT data analysis from pay-as-you-go insurance provider By Miles.

Those who live in urban areas with good public transport links could also hugely benefit from this type of insurance, as they can choose to leave their car at home when they want to save more money. 

Alex Hasty, director at Compare the Market, said: ‘Motorists are increasingly driving fewer miles each year, whether that’s to save money or to do their bit for the environment.  

‘Many may also be working from home more often following the pandemic, and do not need to commute to work as frequently. 

‘Pay-per-mile policies may also benefit motorists who are unsure about how often they will use their cars, as any payments will be based on the miles driven each month, rather than their expected annual mileage. 

How much can I save with a pay-by-mile policy? 

Compare the Market suggests that pay-per-mile policies could be significantly cheaper for motorists who drive for less than 5,000 miles per year. 

These drivers could typically save an average of £141 by switching to a pay-per-mile policy. 

The average annual cost of a pay-per-mile policy is £585, but this falls to £430 for motorists who drive less than 5,000 miles per year, and £306 for motorists who drive less than 2,000 miles per year.


Would you consider a black-box telematics car insurance policy if it saved you more than £100 a year?

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Every driver and vehicle combination is different, but in some cases drivers have reported paying as little as 4p per mile. 

Hasty added: ‘Our research shows that switching to a pay-per-mile policy could save low mileage drivers more than £100. 

‘Given the cost-of-living crisis, these savings could help drivers who are looking to cut driving costs.

‘Drivers can make sure they have the right insurance policy suited to their needs by shopping around when their policy comes up for renewal.’

While James Blackham, chief executive at By Miles, also said that not surprising that motorists are trying to find ways to cut back on unnecessary spending, suggesting pay-as-you-go car insurance could be the way forward.

He said: ‘The cost-of-living crisis is baring its teeth for drivers – with fuel, repairs and the price of cars on the rise – so it was sadly not a surprise to learn that many of us are having to make changes.

‘The decline in mileage isn’t new, as a nation we’ve been driving less each year for over a decade – yet premiums with traditional insurance policies haven’t followed this trend.

‘Pay-by-mile insurance means that the less you drive, the more you save – so if your car is parked up then so are your premiums. 

‘At a time when the cost of driving is through the roof, it might make sense to switch to pay-by-mile if you are a low mileage driver.’


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