RAC's new 'no-ties' car insurance is the latest pay-by-mile policy to launch, offering an alternative to traditional fixed premiums.
Successive lockdowns have changed the nation's driving habits, with many of us swapping an open-road commute for a walk to the living room.
If your car's been gathering dust in the garage, you might be wishing for a policy that insures you specifically for the miles you're actually driving - especially if you're not sure how much you'll be on the road when lockdown's ended. In short, that's what a pay-by-mile policy offers.
Still, there are a few things to think about when it comes to choosing a car insurance policy, so it's worth getting to grips with how pay-by-mile deals work before you make a decision.
Here, Which? looks at pay-by-mile car insurance to help you decide if it's right for you.
When you take out a standard car insurance policy, your insurer (or comparison site) will ask you to estimate how far you drive in a year. It will then combine this estimated mileage with a number of other factors (including your age, car model and where you live) to come up with a quote.
The obvious downside is that your estimate could be wrong. This was the case for many drivers last year when lockdown transformed people's lifestyles.
In a February survey, 49% of 1,787 car insurance owners told Which? that their mileage had reduced by 'a lot' as a direct result of Covid-19 restrictions, but only 21% managed to get a rebate or discount from their insurer.
Instead of using an estimate, pay-by-mile policies work by measuring the number of miles you travel and factoring that into your premium calculation each month. On top of this, they'll charge you a fixed-fee to insure your vehicle while it's parked.
Insurers measure your mileage using a in your car - RAC's is called a 'drive tag' and it goes on your windscreen. However, unlike other telematics or 'black box' insurers, RAC isn't interested in how you drive and its tag will only monitor how many miles you drive.
RAC has dubbed its new pay-by-mile policy 'pioneering', but this type of cover is also available from other insurers such as By Miles, which has been offering these policies for years.
By Miles says its sales have increased dramatically over the past year, with sales up 88% in February, its busiest month.
According to By Miles' analysis of MoneySuperMarket and the Office for National Statistics data, 19.3 million low-mileage drivers could be overpaying for car insurance by buying traditional policies.
The MoneySuperMarket data shows that standard car insurance policies tend to serve those who drive a lot. In 2019, the average cheapest car insurance quote for someone who drives 11,000 to 12,000 miles a year was £519. For people who drive 5,000 to 6,000 miles, it was £734.
So if you're someone who racks up the miles, you might actually find pay-by-mile insurance more expensive, since standard car insurance policies already charge you less.
The table below compares RAC's pay-by-mile insurance to its standard policies:
|Example driver||Total RAC Pay by Mile annual cost||Annual saving compared to standard RAC insurance|
|25-year-old who lives in Milton Keynes and drives a 2013 Vauxhall Corsa, covering 2,302 miles a year||£373.97||£285.85|
|28-year-old who lives in London and drives a 2010 Peugeot 308, covering 2,299 miles a year||£555.47||£228.86|
|34-year-old who lives in Harrow and drives a 2006 Honda Civic, covering 3,381 miles a year||£638.31||£218.43|
|29-year-old who lives in Bristol and drives a 2007 Vauxhall Corsa, covering 2,191 miles a year||£307.09||£200.69|
|37-year-old who lives in Oxford and drives a 2015 Ford Fiesta, covering 4,468 miles a year||£498.65||£191.60|
|33-year-old who lives in Harlow and drives a 2009 Toyota Auris, covering 6,209 miles a year||£916.67||£179.64|
Source: RAC, March 2021
RAC says its pay-by-mile insurance could cost as little as 4p a mile. This is on top of a fixed 'parked premium', and it will depend heavily on your specific circumstances and driving history, as with all insurance quotes.
Both By Miles and RAC recommend their pay-by-mile policies for motorists who don't drive many miles. By Miles targets people who drive less than 7,000 miles a year, while for RAC it's 6,000.
The By Miles policy is available for people aged 21 to 78. At the moment RAC's is for 21 to 65 year-olds, but it has plans to raise that age limit shortly.
When we got quotes from RAC and By Miles using the same driver profile (27-year-old living in South London driving 6,000 miles a year), By Miles was cheaper in the long term. But comparing them directly is complicated due to the different ways you pay.
Our RAC quote was an estimated £62.12 a month (which covered a parked premium plus 8.7p per mile), but our estimate from By Miles was £55.49 (including a set monthly premium and 6.5p a mile) if we selected the 'spread fixed cost' payment option, which is closest to how you pay with RAC.
RAC charged a £68.62 upfront fee, while By Miles' was £87.99. So while By Miles cost more at first, in three months we would have made up that difference through the lower premium.
However, By Miles also has the option of making a larger upfront payment (£284.90 in our case) and then paying £32.50 a month, which works out as £55.98 cheaper annually than paying the lower upfront fee.
One of the RAC policy's key selling points is the ability for customers to leave at any time with no penalties. By Miles on the other hand charges a £50 cancellation fee.
Since we've only tested one profile, we can't definitively say which insurer is cheaper for everyone or even on average. Your specific driver profile could make a big difference, so it's worth getting quotes yourself if you're interested.
We recommend shopping around for a car insurance policy, using comparison sites and checking out insurers that only sell directly.
You should do this every year when your policy comes up for renewal as your current insurer might not be the cheapest option.
Finding the best policy for you is about more than just price. That's why we've reviewed 39 car insurers, giving them policy scores based on Which? experts' analysis and customer scores based on real customer feedback.