Pay As You Go policies cut costs for some drivers &, by encouraging lighter vehicle use, can have road safety & environmental benefits. How does PAYD work?
A Pay As You Drive car insurance policy works the same as a regular product but will be charged differently. This can often bring cost benefits to young drivers, people who do not use vehicles that often and those viewed as high risk by insurers. It also comes with safety and environmental advantages. What is PAYD insurance and how does it work?
What is a PAYD Car Insurance Policy?
Also often referred to as Pay As You Go or mileage verification insurance, this kind of policy is charged on a usage basis. So, a driver will pay for a policy according to certain factors dictated by the insurer. These can include mileage, time of day, time spent driving over a specific period, speed and the types of roads used. Driving less and, in some cases, driving differently can reduce costs.
These products help insurance companies lower risk. Encouraging a young driver not to drive at night (a high-risk period for this market) by making it cheaper to drive by day could reduce claims. Making a town/city driving more expensive than motorway driving which is statistically safer could have the same effect. In return, many drivers see benefits as they ultimately only pay to insure vehicles for the times that they are used, often at cheaper rates, which could see some cost-savings.
How Does Pay As You Drive Work?
This kind of car insurance needs an element of control to assess driving usage. In some cases, mileage, for example, can be automatically measured by a tracking device that is set up inside the vehicle. This can be used to log data on a real-time basis or to store it for retrieval later. In some cases, a policy may work on estimated/actual mileage supplied by the driver. This can then be checked by the insurer or by partner companies.
Payment options vary according to the insurance provider and the system used. In some cases, drivers will pre-pay to buy ‘miles’ which can be topped up over time; in others, they may pay a minimum premium (often given at a reduced rate) with additional charges or discounts for actual usage assessed at set periods (i.e. monthly, quarterly or annually).
Who Might Benefit from Pay As You Go Insurance?
Infrequent drivers may find usage-based coverage more cost-effective. Other people who can benefit include younger drivers who are usually charged higher premiums for standard car insurance as they fall into a high-risk group. Drivers with a history of making claims may also be charged more. In these cases, the PAYG model may help lower costs.
This may also bring benefits in terms of road safety and environmental concerns. Under this model, a driver is rewarded (with lower costs) for using a vehicle less frequently and/or has to think harder about when or where they drive. If enough people take up this kind of solution, this could reduce traffic and lower accident rates. It could also help reduce emissions.
Those considering a PAYD policy should make sure to consider all the advantages and disadvantages before choosing this as a solution. This may suit some drivers; others may find it too limiting and not as cost-effective as regular insurance. Specialist co-insurance policies that offset emissions may also be worth considering for those that worry about vehicle damage to the environment.