Pay-as-you-drive car insurance guide

Every motorist and their wheels are unique, so you should be on the lookout for a car insurance policy to suit your circumstances. 

From third party car insurance to comprehensive cover, there are myriad options and extras to consider. If you want to investigate pay-as-you-drive car insurance, you’ve come to the right place. 

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

It’s sometimes referred to as a ‘pay per kilometre plan’, but both titles hint at the nature of this coverage: it’s car insurance that’s priced to reflect how often or far you drive. A pay-as-you-drive plan is normally an option within a comprehensive car insurance policy.

Providers will offer a premium discount to customers who drive fewer kms, as less time on the road generally means you’re less likely to be in an accident and claim on your policy. Insurance providers will have different kilometre limits (either agreed upon or set) and have varied processes for measuring and altering this.

Who’s it best for? Car owners who only drive occasionally, perhaps retirees or those commuting to work via public transport or bicycle and saving the car for the weekend. It’s also handy if you have multiple shared cars in one household, limiting the km range of each.

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

The standard process is to agree to drive under a certain number of kilometres in a set period – generally annually or monthly – when taking out a policy. Your odometer is recorded when you take out the coverage, and monitored monthly or at the end of the policy period.

For a ball-park figure on how far you can drive with this kind of cover, a few providers advertise a limit of 15,000km to 20,000km a year. Some insurance companies will allow you to bump up this limit if you anticipate extra time behind the wheel, but this usually comes with at an additional cost.

Other policy options will be more closely linked to usage. This can involve receiving further discounts rewarding lower usage on a monthly or even daily basis, while still adhering to a set limit. 

Which companies offer pay-as-you-drive insurance?

As more innovative, tech-focused car insurance companies are coming onto the market, more providers are having to compete with the flexibility they offer. So don’t be surprised if you see pay-as-you-drive or pay-per-km policies popping up more often. Some companies offering these include:

• Huddle
• Real Insurance
• Woolworths
• AAMI
• Apia
• Kogan Insurance
• Australian Seniors

Is pay-as-you-drive car insurance cheaper?

In short, yes. The primary selling point of this type of car insurance policy is that you receive a discount for driving less, so this will make it cheaper than standard comprehensive cover. 

However, if you exceed the kilometre range without letting your provider know, or if you have to keep topping it up, this could end up costing you more.

As with most insurance policies, if you want optional extras included this could also make it more costly. And despite the km cost-savings, it won’t necessarily be cheaper than a third party car insurance policy, or reduce your excess at the time of a claim. 

Pay-as-you-drive pros and cons 

There’s light and shade to all things in life, including car insurance. So consider the pros and cons of pay-as-you-drive car insurance before signing onto a policy (and always read the PDS).

Pros:

• You can get comprehensive cover at a lower price
• You can often top up your kilometres if circumstances change
• The discount could incentivise you to reduce unnecessary driving
  

Cons:

• You have to pay an extra premium to bump up the km limit
• Your claim might be denied or excess increased if you’ve exceeded the limit
• You can’t set and forget this kind of policy, since kms need to be monitored

Once you’ve assessed all the details of pay-as-you-drive car insurance, check out some of the comprehensive options below.