Pay As You Go (PAYG) car insurance is a potential route for electric car owners to get cheaper EV insurance. This innovative insurance model is highly flexible and has the potential to be cost-effect.
Unlike traditional insurance policies that charge a flat annual fee, PAYG car insurance allows drivers to pay based on their actual car usage, making it an ideal solution for those who drive less or are finding it difficult to get electric car insurance.
As the popularity of electric cars continues to increase, PAYG car insurance gives us a chance to match our insurance costs directly with our driving habits. In this article, we review Pay As You Go Electric Car Insurance, exploring its benefits, how it works, and why it might be an option for your electric vehicle.
Pay As You Go Electric Car Insurance Explained
Pay As You Go (PAYG) Electric Car Insurance is a modern insurance model designed to offer EV owners a more flexible and cost-effective way to insure their cars. Unlike normal insurance policies that require paying a fixed annual premium, PAYG policies calculate premiums based on the actual usage of the vehicle. This means that the less you drive, the less you pay.
The concept behind PAYG electric car insurance is simple: it aligns the cost of your car insurance with your driving habits. Premiums are typically divided into two parts: a fixed base rate that covers your car while it’s parked and a variable rate charged per mile or hour the car is driven.
This model is particularly appealing to EV owners who use their vehicles less often or for shorter distances, as it accurately reflects their lower risk of accidents and claims.
Technology plays a crucial role in PAYG insurance. Insurers use telematics devices to track your mileage and, in some cases, driving behaviour. This data helps in calculating your insurance premiums and can also encourage safer driving habits. For electric vehicle owners, who already benefit from lower running costs, PAYG insurance is a step towards making EV insurance more affordable.
Pay As You Go Electric Car Insurance VS Traditional Insurance
Let’s explore how PAYG electric car insurance compares to traditional car insurance:
The biggest advantage of PAYG insurance over traditional insurance is its potential for cost savings. Traditional insurance policies often do not account for the actual usage of the vehicle, leading to higher premiums for low-mileage drivers. In contrast, PAYG insurance allows drivers to pay premiums more reflective of their driving habits, often resulting in cheaper EV insurance costs for those who drive less.
PAYG insurance offers flexibility. Whether you’re working from home, driving seasonally, or using your electric vehicle for short commutes, PAYG insurance adapts to your lifestyle, unlike traditional insurance, which offers little variation in premium regardless of how much you drive.
With PAYG insurance, there’s a higher level of transparency in how premiums are calculated. Drivers have a clear understanding of their insurance costs based on their driving habits. Traditional insurance, while predictable, doesn’t offer this direct visibility between driving behaviour and insurance costs.
What Type of Cover Can You Get With Pay As You Go Insurance?
Pay As You Go (PAYG) insurance policies offer the usual three main types of coverage you would expect from a traditional insurance policy:
This is the minimum legal level of cover required in the UK to drive a vehicle. It covers damage to another person, their vehicle, or their property, ensuring you’re protected if you’re responsible for an accident.
- Third-Party, Fire and Theft
Building on third-party cover, this option also protects you against damage to your own car resulting from fire or theft. It’s a middle ground between basic third-party coverage and more comprehensive options.
- Fully Comprehensive
The most inclusive level of insurance, fully comprehensive cover, includes third-party, fire, and theft, and also covers damage to your own vehicle, regardless of who is at fault in an accident. This level of coverage provides the greatest peace of mind for PAYG insurance users.
What Add-Ons Can You Get With Pay As You Go Insurance?
PAYG insurance policies can be customised with a variety of add-ons to enhance your coverage based on individual needs and preferences. Some of the most common add-ons include:
- Breakdown Cover
Specialist breakdown cover for electric cars to assist in the event of a vehicle breakdown, including emergency roadside repairs or towing services.
- Motor Legal Protection
Financial support for legal fees related to car insurance claims, providing a safety net in legal disputes.
- Personal Accident Cover
Compensation for serious or fatal injuries sustained in a road accident, safeguarding you or your dependents financially.
- Multiple Cars and Drivers
Options to insure multiple electric cars under one policy or add additional named drivers to a single car’s policy, offering flexibility for families or households with more than one driver.
- Car Contents
Protection for personal belongings kept in the car, such as electronic devices, portable EV charging cables, or clothing, against theft, damage, or loss.
- Driving Abroad
Coverage for using your car overseas, with third-party protection often included as standard and the option to upgrade to fully comprehensive for broader protection.
- Keys and Windscreen
Additional features covering lost keys or repairing cracked windscreens, addressing common concerns for drivers.
Benefits of Pay As You Go Insurance for Electric Car Owners
Pay As You Go (PAYG) insurance offers plenty of benefits for electric car owners:
Cost Savings for Low Mileage Drivers
Electric car owners who drive less frequently can significantly benefit from PAYG insurance, as premiums are calculated based on the actual distance driven. This can lead to substantial savings compared to traditional insurance policies with fixed premiums.
Encourages Eco-Friendly Driving
PAYG insurance complements the eco-conscious mindset of EV owners by providing a financial incentive to drive less, reducing carbon emissions and contributing to environmental sustainability.
Most PAYG insurance policies utilise telematics technology to monitor vehicle use, offering the added benefit of promoting safer driving habits through feedback and potentially leading to additional discounts for responsible driving.
Alignment with EV Ownership Costs
Electric cars often come with higher upfront costs but lower operating costs. PAYG insurance aligns with this model by potentially lowering the cost of insurance, further reducing the total cost of ownership for electric vehicles.
Are There Any Downsides to Pay As You Go Insurance?
While PAYG insurance offers numerous benefits, there are also some considerations and potential downsides that electric car owners should be aware of:
The use of telematics devices to track driving habits and mileage can raise privacy concerns among some drivers who may be uncomfortable with their insurance company monitoring their movements.
Not Suitable for High Mileage Drivers
Drivers who frequently use their electric vehicles for long distances may find that PAYG insurance is more expensive than traditional policies. The cost-effectiveness of PAYG insurance decreases as mileage increases.
PAYG insurance is a relatively new offering in the insurance market, and not all providers offer it for electric vehicles, potentially limiting options for consumers.
Cheapest Pay As You Go Car Insurance
Finding the cheapest Pay As You Go (PAYG) car insurance involves a bit more than just looking for the lowest price. You need to really look at the details of what makes PAYG insurance unique, especially for those who drive electric vehicles or have lower annual mileage. To start, it’s essential to compare different insurance providers that offer PAYG options. The cost of these policies can vary widely, so obtaining quotes from several companies is a crucial step in finding the most affordable rates.
Understanding the pricing structure of PAYG insurance is also key. Premiums typically consist of a fixed base rate and a variable rate that depends on the number of miles you drive. Finding a provider with a competitive base rate and a reasonable per-mile charge can significantly reduce costs for those who don’t drive very often. It’s also important to carefully review what each policy covers and to avoid paying for unnecessary extras.
Discounts can play a significant role in reducing insurance costs. Many companies offer reduced rates for safe driving, low total mileage, and the use of telematics devices. Be aware of these discounts and ask your insurer if they offer any.
How Much Does Pay As You Go Insurance Cost?
The average cost of Pay As You Go (PAYG) insurance, specifically the pay-by-mile model, is £477 according to data from Compare the Market:
- 0 to 999 miles: Drivers can expect an average premium of £385, making it an affordable option for very low mileage drivers.
- 1,000 to 1,999 miles: The average premium slightly increases to £391.
- 2,000 to 2,999 miles: For this mileage bracket, the average premium goes up to £413.
- 3,000 to 3,999 miles: The cost continues to rise with an average premium of £434.
- 4,000 to 4,999 miles: Drivers covering this range of miles face an average premium of £477.
- 5,000 to 5,999 miles: The premium increases to £516, reflecting the higher usage.
- 6,000 to 6,999 miles: An average premium of £543 is noted for this mileage band.
- 7,000 to 7,999 miles: Drivers can expect to pay around £592.
- 8,000 to 8,999 miles: The average premium for this mileage range is £632.
- 9,000 to 9,999 miles: There’s a significant hike to an average premium of £812.
- 10,000 miles or more: For high-mileage drivers, the average premium escalates dramatically to £2,320.
On average, the cost across these mileage brackets is £477. These figures represent the lower end of the premiums quoted to 51% of Compare the Market customers throughout 2022.
Like with traditional car insurance, the cost of PAYG insurance is influenced by various factors, including driving history, age, occupation, and the vehicle’s parking location. These factors can significantly affect the insurance premium beyond the mileage.
Do You Need a Black Box for Pay As You Go Insurance?
You do normally need a black box, or telematics device, in Pay As You Go (PAYG) car insurance policies. This tech is crucial for the functionality of PAYG insurance as it enables the insurer to monitor your driving habits and the distance you travel. The data collected by the black box includes not only the miles driven but can also encompass driving behaviour metrics such as speed, acceleration, braking patterns, and the time of day you drive.
Despite it being the norm, not all PAYG insurance policies need a physical black box; some EV black box insurers might offer alternatives such as mobile apps that use your smartphone’s sensors to gather driving data. These apps offer a less intrusive option for drivers who are comfortable using their smartphones for this purpose and prefer not to have additional hardware installed in their vehicles.
Pay As You Go Car Insurance for Young Drivers
Pay As You Go (PAYG) car insurance presents a promising insurance solution for young drivers, who often face steep premiums due to their perceived higher risk on the road.
Young drivers, particularly those who may not use their car all the time or who are keen to demonstrate their responsibility on the road, can benefit significantly from PAYG insurance.
By tracking mileage and sometimes monitoring driving habits through telematics technology, PAYG insurance can offer a more personalised premium, reflecting the individual’s driving style and frequency, rather than being placed in a high-risk category automatically because you are a young, inexperienced driver or have an EV in a high EV insurance group.
The PAYG model typically involves a base rate that covers the car while it’s parked and a variable rate that depends on how many miles are driven. For young drivers who might not drive long distances or who use their car primarily for short commutes, this can lead to savings.
What is Pay Per Mile Car Insurance?
Pay Per Mile car insurance is a type of insurance policy where the premium is primarily determined by how many miles you drive. It is designed to cater to the needs of low-mileage drivers by offering a more flexible and potentially cost-effective insurance solution compared to traditional insurance policies. This model aligns the cost of insurance more closely with actual vehicle use, making it an attractive option for those who don’t drive often or cover long distances regularly.
In the context of this article, the terms “Pay Per Mile” and “Pay As You Go” (PAYG) insurance are used interchangeably. While each term might suggest slightly different nuances in billing or policy structure, they both fall under the umbrella of insurance models that adjust premiums based on the actual use of the vehicle, rather than a flat-rate premium that’s common with traditional insurance policies.
The Final Word on Pay As You Go Electric Car Insurance
Pay As You Go (PAYG) electric car insurance is an innovative insurance product that reflects a shift towards more personalised and flexible insurance solutions.
PAYG insurance, with its usage-based pricing structure, encourages drivers to be more mindful of their driving habits, not only to reduce insurance costs but also to minimise their environmental footprint. As such, PAYG insurance goes beyond financial savings, embodying a lifestyle choice that resonates with the values of EV owners.
For young drivers and those with fluctuating driving needs, PAYG insurance represents a departure from the one-size-fits-all approach of traditional insurance policies. While you still need to pay a fixed part of your policy (in either a lump sum with no deposit or a monthly payment plan with a deposit) PAYG offers an opportunity to demonstrate safe driving behaviours and benefit from premiums that accurately reflect their individual risk profiles and usage patterns.
The ongoing evolution of PAYG insurance will undoubtedly be shaped by further technological advancements, which will hopefully bring down the cost of EV insurance in years to come.
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John is the Editor and Spokesperson for Electric Car Guide.
With over 20 years of writing experience, he has written for titles such as City AM, FE News and NerdWallet.com, covering various automotive and personal finance topics.
John’s market commentary has been covered by the likes of The Express, The Independent, Yahoo Finance and The Evening Standard.