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19 Jun 2022

Could you save by getting 'pay-per-mile' car insurance?

Low-mileage motorists could save around £120 by switching

Motorists who are driving less post-pandemic could save around £120 by switching to a pay-per-mile policy.

New research by Compare the Market claims that infrequent drivers could make big savings by steering clear of traditional car insurance policies. 

Here, we explain how pay-per-mile insurance works, and offer advice on finding the right deal at a time when the cost of driving is soaring. 

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Infrequent drivers could save £120

New research by Compare the Market found that motorists who drive less than 5,000 miles a year could save an average of £123 by taking out a pay-per-mile insurance policy.

The price comparison website says people driving less than 2,000 miles a year stand to make the biggest savings, with pay-per-mile insurance coming in £141 cheaper than a standard policy. 

Unsurprisingly, these kind of policies are less cost-effective for motorists who cover a lot of miles. 

The average annual cost of a pay-per-mile policy was estimated at £585 a year, a figure that falls to £430 for motorists driving less than 5,000 miles, and £306 for those driving less than 2,000 miles. 

What is pay-per-mile car insurance?

Pay-per-mile car insurance policies are aimed at motorists who drive a relatively low number of miles each year. The theory is that if you drive less, you're less likely to have an accident and therefore less likely to make a claim. 

Rather than paying a set annual premium, you'll be charged a fixed rate for the year, and then billed monthly based on the number of miles you've driven.

The fixed rate will be based on factors such as your driving history, age, postcode and occupation. This fee insures the car when it is not in use. 

To calculate how many miles you drive, the insurer will usually install a telematics device in your car. Some policies also monitor quality of driving and may offer discounts to safer drivers. 

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Pay-per-mile offers savings as cost of driving rises

Compare the Market says pay-per-mile car insurance could help cut costs for motorists who drive less frequently, at a time when the overall cost of driving is rising. 

Its research found that half of motorists (49%) are making fewer journeys post-pandemic, while a third (31%) of drivers are attempting to use less fuel to help mitigate rising costs. 

The price comparison website says pay-per-mile policies could be particularly useful for people who are now commuting to work less, or are unsure about how often they will use their vehicles. 

How to save on the cost of running a car

With petrol and diesel prices at record highs and repair costs rising, running a car is becoming more expensive by the month.

For advice on cutting how much you spend on fuel, and how to drive more fuel-efficiently, check out our latest money-saving driving tips.

If your car insurance is coming up for renewal soon, this is a great opportunity to make savings. 

Here are our top five tips to ensure you get the best deal on your car insurance:

1. Don't auto-renew with your current provider

Your insurer will usually send you a renewal quote around a month before your policy is due to end. If you do nothing, the policy will usually auto-renew at that price.

Your renewal quote won't necessarily be the very best deal your provider can offer you. With this in mind, you should cancel your auto-renewal in advance and shop around for a better deal.

Once you've compared your options, it's worth contacting your insurer to see if they can match or beat offers you've found elsewhere.

2. Compare deals and check our provider reviews

Price comparison websites can give you a good idea of how much you might be able to save on your policy. 

These sites allow you to compare dozens of insurers at once to get an indication of which might offer you the cheapest premium.

It's also worth getting quotes from insurers that don't appear on comparison websites, such as Direct Line and NFU Mutual.

Before settling on an insurer, check out our insurer reviews to see how providers stack up for quality of policy and customer service.

3. Set the right excess 

Car insurance policies contain a compulsory and voluntary excess, and you'll need to pay the combined amount if you make a claim.

The compulsory excess is set by the insurer, but you can set your own voluntary excess. Options such as £100, £250 and £500 are commonly available.

A higher excess can cut the cost of your premium, but if it's set too high it might be a barrier to making a claim.

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4. Avoid unnecessary add-ons

Insurers offer a range of add-ons such as breakdown cover, legal expenses cover and key cover.

When combined, these extras can add a significant amount to your premium, so consider whether you really need them before ticking yes. 

In some cases, you might already have cover - for example, some packaged bank accounts including breakdown cover, and some home insurance policies include key cover.

5. Consider alternative types of insurance

As we mentioned earlier, pay-per-mile car insurance might be a suitable option if you drive less than 5,000 miles a year. If you fit into this category, it's worth comparing quotes from specialist providers as part of your research.

If you're a young driver, it's also worth checking out black box insurance policies. These involve installing a device to monitor the quality of your driving. In exchange, you could significantly cut the cost of your premium. 


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