Pay-as-you-drive car insurance

Want car insurance that reflects the way you drive? It doesn't get much closer than pay-as-you-drive car insurance. 

Pay-as-you-drive, also known as pay-per-kilometre, is a type of car insurance that is priced to reflect how often or how far you drive. 

It's sometimes offered as an optional extra with comprehensive car insurance, but there are providers out there whose policies are built around the concept. 

In theory, the idea behind pay-as-you-drive car insurance is that your provider will discount your premium if you drive less. What this means exactly is up to the provider. 

They may have varying kilometre limits, they may have different methods of tracking how often or far you drive, and may provide different discount amounts. 

Pay-as-you-drive car insurance typically suits people who drive about a couple of times a week at most, or those who don't drive very far. 

If you drive on a daily basis, but still want to save on your car insurance, then check out the deals we've found when you compare car insurance on our site.

While real-time tracking policies do exist, the vast majority of policies offering a 'pay as you drive' feature ask you to estimate how much you plan to drive over the following year, and then it's up to you to stay as close to that as possible.

Pay-as-you-drive policies vary in their approach. Generally, you agree to a maximum number of kilometres you plan to drive over a set period (yearly or monthly).

Some insurers may require an initial odometer reading when you take out the policy, followed by periodic checks. However, this isn't universal.

Many insurers rely on your estimate without regularly verifying the odometer, essentially operating on a trust basis. It's important to be accurate in your estimates, as significantly exceeding your declared kilometres can lead to complications or increased costs in the event of a claim.

For an idea of limits, many providers advertise a range between 15,000km to 20,000km per year. You can often increase this limit if needed, though this typically incurs additional costs.

A growing number of policies globally are adopting more sophisticated tracking methods, such as real-time monitoring through an app or device and then charge you on a per-kilometre basis. At present, only KOBA offers such a plan in Australia.

As more innovative, tech-focused car insurance companies like KOBA 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
• Everyday Insurance
• Kogan Insurance

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

But not always. 

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. 

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.