Car insurance can be expensive and if you don’t drive far or often, you could end up paying more than you need. Pay as you drive (PAYD) car insurance gives occasional drivers the opportunity to reduce their premiums based on how many kilometres they drive each year – without cutting back on cover.
How does PAYD car insurance work?
PAYD insurance – also known as pay as you go or low kilometre car insurance – is a type of car insurance that calculates premiums based on the distance you plan to drive each year.
These plans offer the same comprehensive cover as a traditional policy but are designed for cars driven less than average – usually under 10,000km or 15,000km per year. You’ll still pay monthly or annual premiums, but the price will be adjusted to your estimated annual usage. If you drive more than 15,000 km each year, a PAYD plan will not usually be an option.
By driving fewer kilometres, you reduce your risk and can pay less for insurance. The thinking behind this is that the less you drive, the less likely you are to get into an accident on the road, reducing the chances of your insurance company having to pay out a claim.
Insurers typically structure PAYD in one of two ways:
- Selectable limits: the insurer lets you pick a kilometre limit, usually starting at 1,000km per year and increasing in 1,000km steps.
- Fixed caps: the insurer sets a fixed maximum limit, such as 5,000km or 10,000km, which you must not exceed.
This is usually monitored through odometer readings given at the start and end/renewal of the policy, and any time you make a claim. If you think you will go over your limit, you may be able to increase it – though this will likely raise your premium.
Some insurers may use telematics devices or mobile phone apps to track your usage in real time, charging you based on how much you drive. However, this is not common in Australia, especially for personal use vehicles. Insurers are much more likely to use this technology to monitor driving behaviour and adjust premiums or offer rewards based on how safely you drive.
Can pay as you drive car insurance save me money?
The idea behind PAYD insurance is simple: the less you drive, the less you pay.
This is generally true when looking at policies from the same provider. For example, here’s how PAYD and standard comprehensive plans compare for a 35-year-old male driver in Sydney with a five-year-old Toyota RAV4, driving 5,000 km a year:
| Provider | PAYD / low km plan – annual cost | Standard comprehensive plan – annual cost | Approximate savings |
|---|---|---|---|
| Budget Direct | $1,221 | $1,325 | $104 |
| Coles Insurance | $1,282 | $1,391 | $109 |
| Huddle | $1,529 | $2,466 | $937 |
| Ahm | $1,609 | $2,603 | $994 |
| Everyday Insurance | $1,833 | $2,816 | $983 |
| Source: Source: Compare the Market, January 2026 Plans are based on a 35-year-old male driver with a full licence, no prior claims, driving a 2021 Toyota RAV4 GX in Sydney, with a $1,000 excess. |
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In all cases, the driver could save significant amounts each year by choosing the provider’s PAYD policy.
However, this doesn’t mean you’ll always pay the lowest price overall.
The table below shows price ranges for PAYD and standard comprehensive plans from a variety of providers across different annual kilometre limits:
| Kms per year | PAYD plans price range | Standard comprehensive plans price range |
|---|---|---|
| 5,000 | $1,221 – $1,833 | $1,258 – $2,816 |
| 10,000 | $1,331 – $2,316 | $1,297 – $2,893 |
| 15,000 | $2,565 – $2,807 | $1,357 – $3,041 |
| Source: Compare the Market, January 2026 Plans are based on a 35-year-old male driver with a full licence, no prior claims, driving a 2021 Toyota RAV4 GX in Sydney, with a $1,000 excess. |
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While PAYD plans are generally cheaper for drivers covering less than 10,000 km a year, standard comprehensive policies may be more affordable beyond that – and there are usually more plans to choose from.
With this in mind, it’s important to compare all options carefully as a standard comprehensive policy might end up costing less.
When might pay as you drive car insurance be suitable for me?
PAYD car insurance is best suited to those who drive their car less than average, such as:
- Weekend drivers: these may be people who use public transport, work from home, cycle or walk to work during the week.
- Retirees: with no daily commute and potentially fewer long road trips, senior citizens often drive less than working adults.
- Multiple car owners: if your household has multiple cars, there’s a chance they have a lower kilometre count per year than households with one car that does the bulk of the driving.
However, even if you’re currently not driving much, a PAYD plan might not be ideal, especially if:
- You prefer a simple policy without needing to track or report your kilometres regularly.
- You have unpredictable driving habits that make estimating yearly usage difficult.
What can I do if I reach the distance limit on my pay as you drive policy?
Because PAYD car insurance relies on kilometre limits, it’s important to keep track of your usage to avoid extra costs.
If you think you’re going to exceed your kilometre limit during your policy term, contact your insurer as soon as possible. Most insurers allow you to increase your limit partway through, though this usually means your premium will go up. In some cases, you may need to take out a new policy if your driving habits change significantly.
You’ll also need to provide odometer readings when requested. Failing to provide accurate or timely odometer readings can lead to penalties, such as an additional excess charge.
If you make a claim and your odometer reading at that time shows you’ve exceeded your limit, you may be required to pay an extra excess fee, which can be several hundred or even a thousand dollars.
To avoid surprises, stay on top of your kilometre usage and keep your insurer informed about any changes to ensure your cover remains valid and you’re not hit with unexpected costs.
Example scenario: The risks of exceeding your kilometre limit
Alex takes out a pay as you drive (PAYD) car insurance policy with a 10,000km annual limit, paying $1,500 per year for her cover.
A few months later, Alex starts a new job with a longer commute and begins driving more than planned, meaning she’s likely to go over her 10,000km limit. Increasing her annual limit to 15,000km would raise her premium by $300 to $1,800 per year, but would mean she remains fully covered.
However, Alex forgets to contact her insurer to update her policy.
Towards the end of the year, Alex has an incident and needs to make a claim. As part of this, her insurer asks for her odometer reading. Because she failed to adjust her plan and exceeded her kilometre limit, an additional excess of $1,000 applies to her claim on top of the standard excess – a costly reminder of why it’s important to keep your insurer informed of any changes to your driving habits on a PAYD policy.
The pros and cons of PAYD car insurance
Pros
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Can be cheaper
If you drive less often, you may get lower premiums with a PAYD plan than you would on a standard car insurance policy.
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More flexible
PAYD policies let you tailor your cover to your driving habits, so you pay based on how much you actually use your car.
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Comprehensive coverage
You’ll still have full comprehensive cover, meaning you don’t have to compromise on protection to get a cheaper plan.
Cons
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Not widely available
Only a limited number of insurers offer PAYD policies, with most sticking to traditional car insurance options.
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Not always cheaper
While PAYD plans can save money, some standard comprehensive policies may be similarly priced or even cheaper.
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Penalties for exceeding limits
If you go over your kilometre limit without notifying your insurer, you could face additional excess charges up to $1,000.
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Closer monitoring required
You’ll need to keep a close eye on your driving to stay within your limit and regularly report your kilometres, which some may find intrusive or inconvenient.
