Pay-per-mile car insurance UK: how it works and how much some low-mileage drivers could save

Drivers who cover a below-average mileage could save almost £170 per year by changing how they pay for insurance, according to a leading comparison service. 

Car insurance costs have risen by around £60 per year in the last 12 months, according to the Association of British Insurers (ABI) but new figures from Compare the Market suggest motorists who do less than 4,000 miles a year could save £168 a year by changing to usage-based policy.

The comparison site looked at how pay-per-mile car insurance costs compared with traditional fully comprehensive policies with an estimated mileage and found that the per-mile cover was cheaper on average for anyone doing less than 7,000 miles per year.

Pay-per-mile policies are designed to cut costs by reflecting the lower risk associated with a low annual mileage and the cover works in a couple of different ways. 

In most cases, insurers charge an upfront fee to cover theft and vandalism then charge a set per-mile cost for any miles driven in the vehicle. This is tracked using a telematics tracking device or “black box”, which is connected to the insured vehicle or by linking to the connected on-board computer of modern cars. Unlike other telematics policies, which monitor your driving behaviour, per-mile systems simply track your mileage. In other instances, drivers buy a set “allowance” of miles at an agreed price and are then charged for additional distances. 

Compare the Market’s average pay-per-mile policy quote for a driver doing up to 4,000 miles per year was £414 - £168 less than the average fully comprehensive on the site and £64 less than the official ABI figure of £478. For drivers doing fewer miles, the difference could be even greater. Motorists doing under 2,000 miles per year pay an average of £389 for a pay-per-mile policy.

However, as mileages creep up, the difference flips in favour of traditional fully comprehensive policies. Drivers covering between 7,000 and 7,999 miles per year would pay an average of £592 for a pay-per-mile policy, compared to the Compare the Market average fully comp price of £582 and the ABI’s £478. By the time a driver starts covering 10,000 miles or more, the average pay-as-you-drive policy will cost them £2,320 per year. 

Julie Daniels, motor insurance expert at Compare the Market, commented: "Flexible working, environmental concerns, and the increasing cost of driving mean many motorists are typically driving fewer miles each year. It’s important to fully understand how many miles you drive annually, but for motorists who are reducing their mileage, taking out a pay-by-mile policy could be an effective way for you to save money. 

“Our research shows lower mileage drivers could save up to £168 by switching to a pay-by-mile policy through Compare the Market. By comparing prices and deals online, you can make sure you have the right policy for you that is suited to your driving habits.”

James Blackham, CEO of pay-per-mile insurer By Miles, added: “We’re now a nation of low mileage drivers, yet many motorists still don’t realise that they could be saving money on their insurance costs to reflect this. Pay-by-mile insurance means that the less you drive, the more you save - so if your car is parked up then so are your premiums. At a time when the cost of driving is through the roof, it might make sense to switch to pay-by-mile if you are a low mileage driver."