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Pay As You Drive Car Insurance
Pay As You Drive Car Insurance
Written by
Kervin Mathew
Edited by
Laura Crowden
Reviewed by
Adrian BennettCompare car insurance policies the easy way
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What is pay as you drive car insurance?
Long story short
Get lower premiums if you drive less
If you don’t drive your car too often, a pay as you drive policy could cut your premium costs by up to 30%, keeping more cash in your pocket.
Same cover at a reduced price
You still get all the perks of comprehensive car insurance, despite the reduced cost of a pay as you drive policy.
Keep an eye on your odometer
You can only drive a certain number of kilometres a year (generally 10 -15,000kms). Going over could lead an additional excess (up to $1,000) or a higher premium come renewal time.
Top-up options
Many insurers allow you to top up your kilometres if you think you’ll go over your limit.
What is pay as you drive car insurance?
Pay as you drive cover is a type of comprehensive car insurance that offers a lower premium in exchange for limiting the number of kilometres you drive each year.
Put simply, if you generally only drive on the weekend or just use your car for the odd grocery shop but you still want the security of comprehensive cover, then a pay as you drive policy could work for you.
Pay as you drive policies can be ideal for drivers of all ages and stages. For example, young drivers often take public transport to uni or work. While older drivers often drive less as they kick back and enjoy their golden years.
How does pay as you drive car insurance work?
The theory behind pay as you drive car insurance is the assumption that if you drive less, there is less chance of you being involved in an accident. To an insurer, driving less helps reduce your risk profile and makes them more willing to offer you a lower premium.
Here’s how a pay as you drive policy generally works:
- You agree to limit the number kilometres you drive – say 10,000 kilometres per year – in exchange for a lower premium.
- Some insurers let you nominate between 1,000 and 15,000 kilometres a year while others give you the option of topping up your kilometre limit if you go beyond the agreed distance.
- You need to share your odometer reading with your insurer at the start of the policy term, upon renewal or if you make a claim. It’s also a good idea to check your odometer regularly to make sure you’re staying within your usage limit.
Don’t worry, exceeding the agreed kilometre limit won’t land you in insurance jail. But you may be faced with an increased premium come renewal time.
What are the benefits of pay as you drive insurance?
The good thing about pay as you drive car insurance if that you get the peace of mind of comprehensive cover but at a lower premium. Here’s what some of those benefits look like:
You can save money
Depending on the insurer, you could pay up to 30% lower than regular comprehensive cover for a pay as you drive policy. Put the savings towards a rainy day fund or treat yourself to an avo on toast every day.
Exclusive comprehensive cover extras
You can still access optional extras like roadside assistance and excess-free windscreen cover that generally only come with comprehensive cover.
Uninterrupted policy benefits
You may still be covered for some policy benefits you even if you exceed your set kilometres without topping up. Though you might need to pay an additional excess.
While these perks may sound like just what the doctor ordered, keep in mind that pay as you drive policies will vary between insurers. Always read a policy’s product disclosure statement (PDS) and keep an eye out for items like additional excesses, odometer reading requirements and other general exclusions.
What are the disadvantages of pay as you drive?
Unfortunately, it’s not always sunshine and rainbows with pay as you drive cover. The reduced premiums do come with conditions. Insurers can even enforce penalties or deny your claim if they sense something dodgy with your odometer readings. Speaking of odometers…
Keeping your odometer in check
You’ll need to watch the dial and stay within your agreed kilometre limit. This means you must keep your odometer functioning properly and you must tell your insurer if it isn’t working properly. In extreme cases, you could even be required to give your insurer the right to inspect your vehicle or access car-related documents, such as service records.
So, if the last thing you need is more life admin, this could be a potential downside to a pay as you drive policy.
Bracing for additional excesses and increased premiums
If you go over your agreed kilometre limit and then need to make a claim, you may have to pay an additional excess. Commonly known as an Outside Odometer excess, it can be as high as $1,000. The same applies if the odometer reading is lower than at the start of the policy when it’s time to renew. Dodgy!
If you think you’re likely to go over your agreed limit, then with potential additional excesses and increased premiums you may end up paying more than you would have for a standard comprehensive cover with unlimited kilometres per year.
Helpful tip:
Topping up your kilometres can be useful if there’s the need to squeeze in some unexpected travel. This is usually capped at a total of 15,000 kms per year. But do it too many times and it could result in your insurer to reassessing your eligibility for a pay as you drive policy come renewal time.
Adrian Bennett
General Manager for General Insurance
Are all pay as you drive car insurance policies the same?
In principle, pay as you drive policies are intended to offer the same kind of benefit: drive less, pay less. But when you get into the nitty-gritty, they can differ from insurer to insurer.
First off, different insurers call them different names: ‘drive less pay less’, ‘pay as you go’ or ‘low kilometres car insurance’.
Then there’s the actual policy features and benefits. Some insurers may have lower kilometre limits – such as 10,000kms rather than 15,000kms. The type of optional extras you can add to your pay as you drive policy will also vary between insurers. Some of these can include windscreen cover, choice of repairer or accident hire car.
Keep in mind that a pay as you drive policy is different to a pay per kilometre policy. A pay per kilometre policy combines a fixed upfront cost for when your car is parked and a cost for every kilometre your car travels. The insurer then uses that data to calculate your premium. Think of it as a metered car insurance policy.
Is pay as you drive is the right type of insurance for me?
Well, it really depends on your lifestyle, your day-to-day activities and whether you can do it all while driving within a certain number of kilometres a year.
A pay as you drive may be the way to go if you:
- are a retiree and use your car sparingly
- use public transport to get to work and back home
- work from home and don’t travel by car a lot
- save most of your driving for the weekends or the occasional day trip
- own more than one car and drive one of them less
An easy way to find out how much you’d drive over a year would be to measure the number of kilometres you drive over an average week and multiply the result by 52. You may want to give yourself a bit of a buffer to allow for emergency travel or spontaneous road trips.
Frequently asked questions
How many kilometres per year can I drive on a pay as you drive policy?
It depends on the insurer. Some may need you to stay within a predetermined number of kilometres – say 10,000 kilometres per year. Others may be a bit more lenient and let you pick the number of kilometres you’ll be driving – anywhere between 1,000 and 15,000 kilometres per year.
You’re unlikely to find a pay as you drive policy that allows you to drive beyond 15,000 kilometres without an increase in premium or additional excess.
What happens if I exceed my kilometre limit?
Life can sometimes take unexpected turns. You might be urged to do an impromptu interstate road trip or be given the pleasure of picking up the grandkids from school for a couple of months. And this could push the needle beyond your policy’s kilometre limit.
When that happens, you may still be able to access your policy’s benefits or even be able to top up the kilometre limit. If you exceed your kilometre limit, here are some things you should consider:
- You may need to pay an additional excess when you make a claim
- Your premium may increase to accommodate the additional kilometres
- You may no longer be eligible for a pay as you drive policy
Remember that not all insurers may be able to offer you the luxury of topping up your pay as you drive policy. Be sure to check with the insurer themselves or look at the policy’s product disclosure statement (PDS) so you’re prepared.
What’s covered on a pay as you drive policy?
Typically, pay as you drive policies offer a comprehensive level of cover. This means you get all the benefits of standard comprehensive cover, provided you don’t push that odometer too far! Your pay as you drive cover will likely include:
- Third party property damage
- Natural disaster cover
- Fire, theft and malicious damage
- Agreed value cover
- Emergency repairs and towing
- Trailer and caravan repairs
Some policies also give you the option of additional extras such as excess-free windscreen cover, hire car cover and roadside assistance.
In other words, the whole shebang! As always, individual policies and insurers differ in terms of what they cover. So be sure to check the product disclosure statement (PDS) before you settle on a policy.
How else can I save on my car insurance?
Opting for pay as you drive cover can be a great way to shave a few dollars off your premium. But if it’s not for you, or you’re looking to save even more, you can try for a no claim discount or choose to insure your car for market value over agreed value.1For more information, see Moneysmart.gov.au – Choosing car insurance
Here are some other tested ways to help lower your premiums:
- Opt for a higher excess
- Pay your premium annually instead of monthly
- Don’t set and forget. Shop around and compare quotes (or let iSelect do that for you!)
- Keep the number of listed drivers on your policy to a minimum
- Secure your car in a garage or under a carport
- Install a car alarm, steering wheel lock or immobiliser
- Choose only the insurance add-ons and extras you think you’ll need
- Claim only when you must – sometimes you’re better off going out-of-pocket for minor damages.
Is pay as you drive your ticket to savings?
With the average Aussie looking for more ways to save money, pay as you drive could be a great way to cut your insurance costs without necessarily losing out on the benefits of comprehensive cover. Use the iSelect car insurance comparison tool to explore pay as you drive policies from our range of providers.
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