Pay-As-You-Drive Insurance: Is It Really Cheaper?

I still remember the first time I heard about pay-as-you-drive insurance. A friend of mine, who barely touched his car except for weekend grocery runs, was practically glowing when he told me his premiums had dropped. “It’s like paying for electricity,” he said. “If I don’t use it, I don’t pay as much.” It sounded almost too good to be true. After all, who wouldn’t want to save money on car insurance just by driving less?

But as with most things in life, once you scratch beneath the surface, the story isn’t quite so simple. Pay-as-you-drive (often shortened to PAYD, or sometimes marketed as usage-based insurance) appears to offer a neat alternative to traditional car insurance. Instead of paying a flat annual premium based on estimates, you’re billed according to the actual distance you travel, how often you drive, and sometimes even how you drive.

The question, though—the one people really want answered—is whether this model is truly cheaper in the long run, or whether it just feels cheaper because the costs are packaged in a different way.

What Pay-As-You-Drive Insurance Actually Means

At its simplest, PAYD insurance is like buying fuel. You pay more if you drive more, less if you drive less. Most insurers calculate this by installing a small device in your car or using a smartphone app that tracks mileage. Some companies go further and monitor your speed, braking patterns, and even the time of day you’re driving.

For example, an insurer might charge you a fixed base fee plus a few cents per kilometre. Drive 500 km in a month, and you pay accordingly. If you double that mileage, your premium doubles too.

Now, that setup sounds fair, right? You’re paying for exactly what you use. But whether that fairness translates into savings depends on a bunch of factors—some obvious, some a little hidden.

The Pitch vs. The Reality

Insurance companies tend to pitch PAYD policies as ideal for “low-mileage drivers.” That means students who mostly walk, retirees who only use the car for errands, or urban professionals who commute by bus or train and just keep a car for the occasional weekend trip. If that’s you, it really might be cheaper.

But here’s the tricky part: if you drive a moderate amount—say, 12,000 to 15,000 kilometres a year—you might find that PAYD doesn’t save you much compared to a regular policy. In some cases, it can even cost more. Why? Because the base fee doesn’t go away, and the per-kilometre rate can quietly add up.

I spoke with a neighbour who tried a PAYD plan for six months. She thought it would cut her bills in half since she only drove to work three times a week. But between the unavoidable flat fee and the fact that her insurer charged higher rates during “riskier” driving hours (evening commutes, for instance), her savings were marginal—less than $15 a month.

How Insurers Calculate Risk

It’s worth pausing here to understand what’s really going on. Insurance, at its core, is all about predicting risk. Traditional car insurance uses averages: insurers look at age, driving history, vehicle type, and general assumptions about annual mileage to set a premium. PAYD adds more personal data to the mix, and that data can cut both ways.

Imagine two drivers who both drive 6,000 km a year. One mostly does it in daylight, sticking to quiet suburban roads. The other racks up the same distance by driving late at night on busy highways. The PAYD system will almost certainly reward the first driver with lower rates while penalising the second.

That seems fair in theory, but it also opens the door to some eyebrow-raising scenarios. A driver who’s careful but works a night shift may end up paying more than someone who drives less carefully but only during “safe” daylight hours.

So when you ask whether PAYD is cheaper, you’re really asking: cheaper for whom, and under what circumstances?

The Privacy Trade-Off

Another factor people don’t always consider is the cost that isn’t financial—privacy. PAYD insurance often requires sharing real-time data about your movements. That could mean your insurer knows where you are, when you’re driving, and how you’re handling the wheel.

Some people shrug this off. “Everyone has my data anyway,” a friend told me when I asked him about his PAYD plan. But others feel uneasy about the idea that their insurer might use that information for more than just calculating premiums. There’s the risk (however small or theoretical) that data could be shared with third parties, or even affect claims disputes.

It’s not a deal-breaker for everyone, but it’s worth remembering that “cheaper” sometimes comes with hidden costs that aren’t measured in rands, dollars, or pounds.

Situations Where PAYD Is Cheaper

Let’s not ignore the positives, though. There are very real situations where PAYD can slash your insurance bill.

Seasonal drivers. Think of someone who spends most of the year overseas and only uses their car for a few months. Why pay for 12 months of coverage at full price?

Multi-car households. If you own two vehicles but mostly drive one, PAYD on the second car could be significantly cheaper.

Urban dwellers. Living in a city where public transport does the heavy lifting? PAYD can keep you covered without draining your budget.

A colleague of mine, who works from home, told me his PAYD policy saves him nearly 40% compared to his old plan. He drives only 200 km a month, mostly short trips during the day. For him, PAYD is a no-brainer.

The Potential Downsides

But here’s the counterpoint. If your lifestyle changes, PAYD might stop working in your favour. Start a new job with a longer commute, or pick up a side hustle that requires late-night driving, and your costs could suddenly shoot up.

There’s also the psychology of it. Some people say PAYD makes them hyper-aware of their mileage, almost like watching the meter run in a taxi. For cautious drivers, that can feel empowering—finally, their careful habits are rewarded. For others, it creates a kind of low-level stress. “Should I take this trip, or will it push up my insurance this month?” one PAYD user complained.

And let’s not forget the technology itself. Devices and apps don’t always track perfectly. Disputes about accuracy aren’t common, but they happen. Imagine being told you drove 200 km more than you actually did, with little recourse to prove otherwise.

Is It Really Cheaper, Then?

So where does this leave us? If we’re being honest, the answer is: it depends. PAYD insurance can be cheaper, sometimes dramatically so, but only for certain kinds of drivers. For low-mileage, daytime, careful drivers—it’s a blessing. For average drivers, it might just break even. And for heavy or high-risk drivers, it’s probably more expensive.

In other words, PAYD isn’t a silver bullet. It’s a tailored solution that works brilliantly for some and not at all for others. The marketing often glosses over that nuance.

My Take

If you’re curious, my own experiment with PAYD lasted about four months. I was working remotely at the time and driving maybe twice a week. At first, the savings were obvious—about 25% off my old premium. But then life shifted. I started commuting into the city more often, and suddenly my “cheap” insurance was inching past what I used to pay.

The kicker? I didn’t like the little black box in my car silently tracking me. It wasn’t sinister exactly, but it felt… intrusive. Like having a backseat passenger who never speaks, just quietly takes notes.

Would I recommend PAYD? Yes, but cautiously. Try it if you’re genuinely a low-mileage driver. But go in with eyes open. Don’t assume that just because it’s marketed as cheaper, it will automatically save you money.

Final Thoughts

Car insurance has always been a balancing act between risk and cost, and PAYD is just the latest twist in that long-running dance. It shifts some control back to the driver, which is refreshing. But it also asks you to trade some privacy, and sometimes, some predictability in your bills.

Is it really cheaper? For some, absolutely. For others, not so much. The only way to know for sure is to run the numbers on your own driving habits and compare. And maybe, just maybe, be ready to accept that cheaper isn’t always the same thing as better.

Published on: Sep 11, 2025

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