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Does pay as you drive car insurance save you money?

Alex Ritchie avatar
Alex Ritchie
- 4 min read
Does pay as you drive car insurance save you money?

Car insurance helps provide drivers with peace of mind that their vehicle will be protected if the worst were to occur. However, it’s no secret car insurance premiums can be expensive. 

If you're looking to save money on car insurance, a Pay As You Drive policy might be worth considering. Let’s explore how Pay As You Drive car insurance works, and how it could save you money compared to traditional car insurance. 

What is Pay As You Drive car insurance and how does it work?

Pay As You Drive insurance is a car insurance option where your premium is determined by the number of kilometres you drive.

Pay As You Drive insurance works by allowing customers to only pay for the kilometres they drive instead of paying a fixed premium. Pay As You Drive policies aim to provide a more individualised and usage-specific approach to calculating insurance costs. 

The process of Pay As You Drive insurance typically looks like:

  1. Sign up and advise how many kilometres you drive per year. Note that many insurers will allow you to top this up if you are unsure and end up going over. 
  2. Provide an odometer reading of your car at the beginning of the policy. 
  3. The insurer will then confirm the purchased number of kilometres your insurance will be valid for. 

This type of insurance may offer potential savings for drivers that do travel as much as the standard driver, such as public transport users, retirees and second car owners. For example, if you lived in the city and relied on public transport but still had a vehicle that you use infrequently, this type of insurance may be a competitive option. 

What is pay per kilometre insurance?

A similar car insurance option you may have come across is pay per kilometre insurance. As the name suggests, this policy sees drivers charged at a per-kilometre rate.

Instead of assuming how many kilometres you may drive annually, pay per kilometre insurance involves installing a device or using an app that monitors and tracks your driving habits. You will be charged for the actual distance the vehicle drives, as opposed to Pay As You Drive insurance which is based on your estimation. 

However, this option is not for everyone. There may be upfront installation fees involved with the tracking of your vehicle’s mileage. Some drivers may also have privacy concerns and prefer to not have their vehicle data tracked and collated by an insurance provider. 

How Pay As You Drive insurance could save you money

With traditional car insurance policies, you will pay a fixed premium. This is typically hundreds to thousands of dollars depending on the type of coverage, and the make and model of the vehicle. 

Pay As You Drive insurance can be a cost-effective alternative to this type of insurance. After all, if you rarely drive your vehicle, it does not make sense to pay the same costly premiums as daily drivers. Traditional insurance plans may use broad assumptions to determine premiums. Pay As You Drive insurance allows for a more personalised approach, taking into account your specific driving habits and the number of kilometres you cover.

Pay As You Drive insurance also aims to provide a more accurate reflection of your risk. If you're driving fewer kilometres, you're statistically less likely to be involved in an accident, and this should result in lower premiums. 

If you’re considering a Pay As You Drive insurance policy, compare quotes from different providers and carefully review the terms and conditions. If you're a low-kilometre driver with safe driving habits, Pay As You Drive insurance could potentially offer savings. However, individual results may vary, so it's crucial to compare details of each policy and consider your unique driving patterns, budget and preferences.

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Product database updated 22 Jun, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.