What is pay as you drive car insurance?

If you don’t do a lot of driving, you might be paying more than you need for car insurance.

Find out how you could save hundreds* every year with Pay As You Drive car insurance.

Car insurance can be expensive, especially if you don’t drive a lot. 

But even though you might not use your car for a daily commute or long trips, you probably still want to know you’re covered for things like accidents, damage and theft.

With Pay As You Drive (PAYD) car insurance, you get the same level of cover as traditional comprehensive car insurance – but you only pay for how far you actually drive.

PAYD car insurance could be a good option for you if you don’t drive often, or only drive short distances. 

With PAYD car insurance, the less you drive, the more you save on your premium.

Let’s take a closer look at how it all works.

What is Pay As You Drive insurance?

Pay As You Drive car insurance provides the same level of cover as traditional comprehensive car insurance – but your premium is calculated based on how much you actually drive. 

The less you’re on the road, the less likely it is that you’ll get into an accident and your insurer will have to pay out a claim.

With this in mind, Pay As You Drive insurance policies are designed to reward low-kilometre drivers with a lower premium.

Like comprehensive car insurance, PAYD insurance generally covers the following:

How does Pay As You Drive insurance work?

There are a couple of variations of Pay As You Drive insurance available.

Some insurers will ask you to nominate the number of kilometres you drive per year and your premium is calculated based on that. 

If you don’t use up your nominated kilometres over the year, they can be carried over to the next year. You can also buy extra kilometres and top up your policy if you need to. 

One potential downside to this type of PAYD insurance is that you could end up paying more than expected if you go over your nominated kilometres.

Other PAYD insurers, like the one we partner with at Compare Club, work a bit differently. 

Our insurance partner connects your car’s onboard computer to an app, which counts the number of km you drive. 

You’re then charged as little as 3¢ per km you drive, plus a fixed upfront cost that covers your car while it's parked from incidents such as fire, theft, hail or third party damage.

This means your premium is calculated based on your actual kilometres driven rather than a yearly estimate.

Is Pay As You Drive car insurance cheaper than normal cover?

Pay As You Drive is generally cheaper than traditional car insurance if you don’t drive very much. 

Here’s an example to show the potential savings.

The average Aussie pays $950 annually for comprehensive car insurance# and drives 12,100km every year^.

Let’s say you drive an average of 8,000km per year and want to be insured for a car valued at $40,000.

Based on an annual estimate from our insurance partner, you would be looking at saving more than $250 every year* on your comprehensive car insurance policy by switching to a PAYD policy.

If you drive less than this or have a lower-valued car, you could save even more.

Is this the right type of car insurance for me?

This really depends on how many kilometres you drive each year.

​​If your car usage is low or moderate, you might be paying more than you need to by sticking with traditional car insurance.

PAYD car insurance could be a worthwhile cost-saving option if you don’t drive long distances or use your car very much.

It could be that you take public transport to work and only use your car for the weekly grocery shop and one-off outings.

Maybe you’re retired and not a big driver anymore. Or maybe you need insurance for a second car you don’t use much.

Whatever your situation looks like, PAYD car insurance could be worth exploring if you think you drive less than the average Joe.

You could potentially be looking at saving hundreds on car insurance every year.

Whether you drive a little or a lot, Compare Club’s experts could put you on a better value policy.

Compare quotes and adjust your cost, coverage and excess in just a few clicks.

Could you save money on your car insurance policy? Find out in under two minutes by clicking the button below.

Disclaimer

This guide is opinion only and should not be taken as financial advice. Check with a financial professional before making any decisions.

*Price comparison based on Insurance Council of Australia average annual comprehensive insurance cost ($950) versus KOBA annual estimate at 8,000km driven per year, $1,500 excess and agreed market value of $40,000 (3.9¢ per km + $368.27 upfront fixed cost). There may be a difference in actual price.

^ABS Survey of Motor Vehicle Use, Australia, June 2020

#Insurance Council of Australia

GENERAL ADVICE WARNING: General Advice is advice that has been prepared without considering your current objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of the advice having regard to those objectives, situation or needs.

If the advice provided relates to the acquisition or possible acquisition of a new insurance policy you should consider the insurers PDS prior to making the decision to purchase their product.  Information regarding the income we have been paid by the insurer for this transaction is available upon request.