Pay as you go car insurance, also known as pay as you drive, is where premiums are based on the actual distance you drive. The insurers allow you to pay less for your insurance, as they recognise the chance of you having an accident is lower, as you're on the road less.
Insurers often use specific product nomenclature for these offerings, such as a Gold Low Kilometres Policy (a specialised tier designed to provide high-level protection for those who spend less time on the road).
Unlike traditional policies with fixed premiums, this model adjusts costs in line with your driving habits. Because your "risk" is lower, so are your premiums.
It doesn't necessarily mean you pay "as you drive" – you can still pay your premium annually. But insurers will calculate your premiums based on your vehicle's estimated and actual usage. There are a few ways they do this:
It is important to understand the operational mechanics: while a standard low-km discount is a flat reduction based on your estimated yearly travel, a true Pay As You Drive (PAYD) policy involves more dynamic tracking or specific odometer-based pricing.
When you're getting a quote, you provide your odometer reading. Then you select how many kilometres you want to pay for — for example, 3,000km per year. You pay and you're ready to hit the road. If your odometer starts to near this limit but your policy term is not yet expired (meaning you haven't hit 12 months yet), you contact your insurer to top it up. The more kilometres you add, the more you'll pay.
Certain policies allow drivers to pre-select a kilometres cap, such as 5,000km or 10,000k, based on anticipated usage. You end up with a policy that's the same as regular comprehensive car insurance, however because you've selected your expected kilometres travelled in a year to be lower, you'll pay less in premiums.
Some insurers install telematics devices or use mobile apps to monitor the kilometres you're driving in real-time. This allows the insurer to charge you on a per kilometre basis as they'll know how many kilometres you're travelling. It can be a cost effective solution but, unsurprisingly, some get the ick on this because it feels like an invasion of privacy.
Yes, the benefits you receive and the coverage you're eligible for are the same as a standard policy. The difference is the way you track your kilometres and pay the insurer.
If you record your odometer reading and are required to 'top up' if you go over the amount of kilometres you've bought — that's a pay as you drive policy. Similarly, if you install a tracking device so the insurer can record your kilometres travelled and charge you accordingly — that's a pay as you drive policy.
Pay as you drive insurance is essentially a type of comprehensive cover, with your premium structured around how much you drive.
Coverage typically mirrors that of comprehensive policies, including:
It's essential to review individual policies, as coverage details and limits can vary between insurers.
For seniors who often drive less frequently, pay as you drive insurance can be worth considering. By aligning premiums with actual usage, it offers potential cost savings.
However, it's worth noting that many popular car insurance providers offer coverage options for those who drive an average of 5,000 kilometres per year. If you're expecting to drive around this amount or less, then it's worth considering these providers in your car insurance comparison. While pay as you drive options can provide a cheaper option, this doesn't immediately make them the cheapest or the best for your needs.
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How we picked theseWe analyse over 30 car insurance products across insurance providers, and rate each one for price and features. We collect up to 36 quotes per product, for male and female drivers in New South Wales, Victoria, Queensland, South Australia, Tasmania and Western Australia. Quotes are collected for 20 year olds, 30 year olds and 60 year olds, assuming an excess of $850 for a 2020 Toyota Corolla 4 door sedan model, with an average 15,000 kms driven each year. While we are not allowed to display actual quotes, our Finder Score aims to serve as an indicative guide to how cost and feature competitive a product might be for you.
Our feature score assesses each product for more than 15 features across loss and damage coverage, repairs and assistance coverage, personal items coverage and policy coverage. Features we assess include but are not limited to legal liability, essential repairs, new car replacement, car hire events, roadside assistance, agreed or market value, windscreen damage and natural disaster coverage.
"A pay as you drive policy can be great for those who are driving less than 15,000km per year. However, it's worth knowing that a lot of regular insurers charge a lower premium when you drive less kilometres. Compare a few options from pay as you drive providers and normal providers to be sure that you're getting the best deal."
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