Pay-as-you-go auto insurance explained

Pay-as-you-go auto insurance monitors your driving habits to determine how much you are paying for your auto insurance premiums. Could a PAYG Policy Fit Your Driving Life and Save You Money?

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

Sometimes referred to as telematics insurance, pay-as-you-go coverage is often associated with “black box” insurance policies. But some innovative insurance companies now offer “real” pay-as-you-go insurance coverage, billing you by the mile.

As technology advances, there are a number of different charging plans. These can be useful if you don’t use your car a lot but still have to drive every now and then.

Some refer to pay-as-you-go coverage with the acronym PAYG – or usage-based auto insurance. It is also an easy to understand and popular business model. Either way, this is a laudable attempt by insurers to charge based on the number of people who use their cars, rather than charging a fixed annual premium.

Who benefits from pay-as-you-go insurance?

Pay-as-you-go auto insurance isn’t for everyone. However, there are several good reasons why a pay-as-you-go policy deserves consideration, especially if you Did not have time to build your driving history.

Here are three reasons to consider pay-as-you-go:

  1. Statistics show young drivers are more likely have accidents and make insurance claims than any other age group.

  2. This coverage can help reduce costs by monitoring driving habits and driving behavior.

  3. Drivers using their cars during off-peak hours could also save on their insurance, as some insurers charge less for kilometers driven when the roads are more empty and accidents less likely.

Those convicted of driving or criminal charges who typically face higher premiums may also benefit from this type of coverage.

What is the difference between term auto insurance and pay-as-you-go insurance?

Term insurance lasts only a specific time. This period can be hourly, but more often it is between one and 28 days. This can be a great option for those who borrow a car. Or pick up a newly purchased car at their seller’s house.

Pay-as-you-go insurance, however, can be useful if you need longer-term coverage, but like the idea that your driving habits are carefully assessed, which means you could pay less in the process. ‘together. Safe drivers will generally earn more than careless drivers (although this is not guaranteed).

What are the different types of pay-as-you-go auto insurance?

The following types of auto insurance policies could all be considered “pay-as-you-go” – but only some offer “true” pay-as-you-go capability:

  • black box policies (or telematics)

  • car insurance per kilometer

  • car insurance on time

  • black box car insurance – or pay for insurance the way you drive

The term “black box” is a shorthand for a small device that insurers install in an insured’s car to measure driving behavior.

How does this technology generally work?

This is often using a SIM card inserted in a ‘black box’. This can contain a motion sensor, GPS technology and software to transmit your driving data to your insurer.

  • This box is usually attached to the engine compartment of your car, or perhaps using an app downloaded to your smartphone

  • The box or the app uses satellite technology to track your mileage and the way you drive

  • Normally, drivers are billed a fixed amount per year and allowed to drive a certain number of kilometers before being billed additionally.

Some pay-as-you-go insurers allow you to top up in batches of miles that you can carry forward to the following year if they are not used – this can prove very useful in the event of a health pandemic, for example.

So what exactly are telematics boxes tracking?

A black box follows a number of factors so that the insurer can accurately assess your level of risk and bill you the most profitable and competitive premium.

A black box will usually measure

  • acceleration and braking

  • cornering speed

  • how often do you drive

  • if you take travel breaks

  • where you drive

  • what time of day or night you are on the road

  • your total mileage over a given period

Most policies monitor your driving behavior online or through an app. Some insurers will offer rewards and discounts to drivers who demonstrate safe driving behavior. Remember, insurers are experts with data and software that can help them predict your level of risk.

What about policies similar to pay-as-you-go?

One example is paid auto insurance per kilometer. While some black box policies are based on mileage driven, new technology is emerging that allows you to really pay for how you drive.

In miles is the first insurer to offer this type of pay-as-you-go coverage in the UK. It’s based on a flat monthly rate to cover your car when it’s not in use, plus a per mile rate for the exact mileage you are covering.

Mileage is measured by a Miles Tracker that plugs into your car, combined with an app on your mobile phone. At the end of the month, you are billed for the kilometers driven as well as your monthly plan.

This type of “real” pay-as-you-go auto insurance policy could be beneficial for drivers who do not use their cars regularly.

Or those who use their car regularly but only for short trips.

Auto insurance paid by the hour

You can also purchase pay-as-you-go auto insurance based on the time you spend driving (rather than mileage). Again, there is usually a flat rate to pay to cover your car while it is stationary.

How much you pay for the rest of your premium will depend on how you drive – and your insurer will track this data using a black box or plug-and-drive device, which you can usually track. via an app.

Advantages and disadvantages of pay-as-you-go insurance

To determine which type of insurance is right for you, below are the pros and cons of pay-as-you-go coverage:


  • It can be a great way to save money if you don’t drive a lot

  • If you are a young driver, you might find it cheaper than traditional auto insurance.

  • You can cancel at any time, with prior notice, and there are usually no fees to pay – although always check

  • Older drivers may also benefit PAYG coverage, especially if their car use is infrequent


  • If you drive a high number of kilometers each year, you could end up paying more than with a traditional policy.

  • You may be limited on what time you can drive

  • If your driving habits change, for example, you find a new job and have a longer commute, your insurance costs could increase.

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