PAY AS YOU GO CAR INSURANCE
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What is Pay As You Go car insurance?
Young drivers, or drivers who have only just passed their driving test, face the highest car insurance premiums. Even for a third party, fire and theft policy on an old banger, it is likely to cost a lot to get insurance until you start building up a few years No Claims Bonus.
This is because young and new drivers are seen as a higher risk by car insurance companies, who deem them more likely to have accidents and make claims.
Thankfully, modern technology has started to come to the rescue of young drivers – particularly telematics or ‘black box’ technology.
As well as tracking how fast you drive and what times of the day you drive, black box technology is also being used to offer more customised insurance policies to young drivers based on how much they drive. This is known as Pay As You car insurance and is targeted to young and new drivers who only intend to drive a certain mileage each year.
"Pay as you go car insurance can be a great way for young and new drivers to reduce the cost cover, but make sure you are comfortable with the restrictions before you buy a policy."
Car insurance companies are using telematics to offer cheaper premium prices to young and new drivers by introducing different options based on low mileage, time curfews and pay as you drive (PAYD).
In the eyes of the car insurance company, these options lower the risk of offering young drivers cover as they can reduce the amount of time they are on the road or restrict what times they are driving. In return, young drivers get to pay cheaper premiums while they build up their no claims.
However, some drivers may feel that the loss of their freedom with regards to when, where and how they drive is too big a price to pay for cheaper car insurance premiums, so it is important to weigh up your options and work out exactly what option suits you best before you buy a policy.
Is Pay As You Go car insurance a good idea?
As a means of reducing the cost of car insurance, PAYG policies are certainly an option worth considering.
The one main drawback is that it will restrict your driving, which may not be what you are looking for after finally passing your test and getting your first car. Also, it may not be clear how much you will have to pay in the long run for a pay as you drive car insurance policy.
The price of your cover will be tied into how many miles you want to drive during the life of your policy – which typically last for one year.
When purchasing the policy you tell the insurance company the amount of miles you want to ‘purchase’ e.g. 5,000, 10,000, 12,000 etc.) and they will provide a quote to cover you to drive that amount of miles.
However, if you drive more than the quoted mileage you will be charged more by the insurer. Different insurance companies will apply different rates to these ‘extra’ miles, but the one thing you can be certain of is that they won’t be cheap. On the other hand, you may find that you over-estimated how many miles you would drive and end up paying too much for cover.
As always, it is important to shop around and compare quotes to make sure you are getting the best deal.
Other ways to get cheaper car insurance
If you have reservations about getting a pay as you go car insurance policy, then there are other things you can do to reduce the cost of car insurance.
One common way for new and young drivers to get cheaper car insurance is to take the Pass Plus advanced driving course.
This is taken after you pass your standard practical driving test and goes through extra things like night-time driving and bad weather driving. As a Pass Plus certificate demonstrates you are a more experienced and well-rounded driver, most insurers will reduce the cost of the premiums they quote as you will be deemed as less of a risk.
Another popular method is to add an older, more experienced driver as a named driver on your policy. This used to result in quite a substantial discount as insurers would see that another driver would sometimes be driving the car, and therefore the risk of a claim would be reduced. Although insurers are aware of this ‘trick’ now, it still often results in a discounted premium.
Just be sure to only add them as a named driver and not the main policyholder – as this is called ‘fronting’ and is actually illegal.
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New forms of pay as you go car insurance
Technology is always developing, and some car insurers have started to introduce new types of pay as you go car insurance policies based on how we pay for mobile phones.
These typically involved the policyholder paying a fixed monthly amount based on how old they are, where they live (and where the vehicle is parked overnight), the type of car, claims record and so on. Extra charges are then added on to the premium based on the amount of miles they drive, or even an hourly rate based on how long the car is in use – which are tracked using a black box like the more conventional telematics policies.
As there are lots of options out there, it pays to compare quotes from different insurers to make sure you get the best deal for you and your needs…