Miles of Misunderstanding: The Curious Case of 'Pay As You Drive' Insurance

Customer in drive-thru handing credit card to check-out window clerk, as a metaphor for pay-as-you-drive


Car insurance
, an industry often seen as stable and predictable, is experiencing a quiet revolution with the emergence of 'pay as you drive' (PAYD) policies. A form of usage-Based Insurance (UBI), PAYD suggests a straightforward concept: your insurance costs align directly with your actual driving distance.

But is your PAYD policy truly charging you 'as you drive'? As you’ll see, this term has evolved in its application by insurers


PAYD: a term hijacked?

A true PAYD policy, in its original sense, calculates premiums based on the actual distance driven, typically monitored through various methods like manual odometer readings, real-time tracking or even statistical models based on historical data.

But now, most ‘PAYD’ policies simply ask you to estimate your yearly driving distance, providing discounts for lower estimated mileage. This model, though not strictly PAYD in the traditional sense, offers benefits like simplicity and ease for policyholders. It also includes a self-regulating mechanism: discrepancies in reported mileage can be flagged during claims, ensuring honesty.

The current standout in true PAYD is KOBA, with its Pay-Per-Km plan, tracking via an app connected to the car’s computer. This model represents a literal take on PAYD, different from the broader industry approach.

Below are a few other PAYD policies that strike a good balance between cost, convenience, and accuracy. And scroll on further for more insightful discussion about the evolution of PAYD.

PAYD policies using the 'estimation' model

Budget Direct Comprehensive Car Insurance**
  • Low kilometre policy for reduced premiums if driving under 12,000km a year.
  • Mozo Experts Choice Value Insurance Provider of the Year - 2023^

Budget Direct's 'Drive Less, Pay Less' car insurance is ideal for drivers with lower annual mileage, offering reduced premiums for those driving under 10,000km per year. This comprehensive policy encompasses a wide range of protection, from natural disasters to theft and accidental damage, along with substantial legal liability coverage. Standout features include new-for-old car replacement for newer vehicles (T&Cs apply) and 24/7 claims support. Additionally, the policy provides a hire car following theft. Note, the excess for unlisted drivers may be higher in claims situations, your monthly premium will be higher if you choose to pay monthly rather than yearly, and certain extras like roadside assistance will cost you extra.

ROLLiN' Comprehensive Car Insurance**
  • Pay for insurance month-to-month, like a subscription, with no cancellation fees
  • Mozo Experts Choice Exceptional Value Car Insurance Award Winner 2023^
Find out more

ROLLiN' is shaking up car insurance with a new pay-as-you-drive approach that lets you pay month-to-month without any lock-ins or cancellation fees, and may even offer reduced rates for lower mileage. So if you don't need to drive for a certain amount of time, you can simply cancel your cover without penalty and pick it back up when required. You'll enjoy 24/7 online claims support and a lifetime guarantee on authorised repairs, plus if you accidentally damage your windscreen, sunroof or window glass, ROLLiN' will fix them for free (once per insurance period). The standard excess is $800 (including under 25s) but $3,000 for any unlisted driver so make sure regular drivers are listed on the policy.

In defence of evolving terms

While we advocate for clear terminology, we recognise that language evolves. Terms like PAYD may adapt beyond their original meaning. Our goal is to keep shedding light on how these insurance models function, ensuring clarity and informed choices for consumers - starting with these tips for choosing the right PAYD policy


Tips for choosing the right 'pay as you drive' policy

Choosing the right PAYD policy is about finding one that matches your actual driving habits and offers the flexibility you need. Here are some tips to help you out:

  • Understand the policy mechanism. Is the policy based on estimated annual mileage or actual kilometres driven? Your choice should align with how predictable your driving routine is.
  • Look for Adaptability. Life's unpredictable, and so is driving. Opt for a policy that allows for mileage adjustments without too much fuss or added cost.
  • Scrutinise the terms. Be wary of hidden fees or clauses, especially with policies based on estimates. Ensure you're clear on what happens if you exceed your predicted mileage.
  • Shop around. Don't just jump at the first 'Pay As You Drive' offer. Compare different insurers to find the one that best fits your driving style and budget.

* Terms, conditions, exclusions, limits and sub-limits may apply to any of the insurance products shown on the Mozo website. These terms, conditions, exclusions, limits and sub-limits could affect the level of benefits and cover available under any of the insurance products shown on the Mozo website. Please refer to the relevant Product Disclosure Statement and the Target Market Determination on the provider's website for further information before making any decisions about an insurance product.

^See information about the Mozo Experts Choice Car Insurance Awards

Car insurance comparisons on Mozo - rates updated daily

Search promoted car insurance below. Advertiser disclosure. Important information on terms, conditions and sub-limits.
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