Pay as you go car insurance

Pay As You Drive car insurance works the same way as 'pay as you go' mobile phones, that is, you only pay when you use your car. Brilliant, don't you think? If you're using your car only during weekends, you shouldn't be charged car insurance from Monday to Friday, right? Well that's why a few insurers have started this scheme to make them stand out in the insurance market where competition is really fierce.

This model was originally designed mainly for young drivers who pay too much in car insurance premiums but could be useful for other mature drivers doing lesser than average miles in a year. With an annual car insurance rate, you are quoted a figure drawn from the statistics of other people in the same age bracket and car insurance group along with some other factors, but this does not reflect what you as an individual should be paying in reality as it is just the average computed from previous data analysed by the insurer.

How does the Pay As You Go insurance scheme work?

A tracking device (known as a black box) is fitted to your car which sends the details of your journey through satellite to your insurance company to calculate your Pay As You Go (PAYG) car insurance usage. At the end of each month, you will receive a bill calculated from the information sent by the tracker device for the journeys you've made.

The way your bill is calculated depends on two main factors - the time of the day you drive and the road type for your journey. During peak times which are from 11pm to 6am, drivers could be paying the highest for each mile travelled because that's when most accidents occur. You might also incur a penalty for it, hence the policy discourages night driving.

Also travelling at 70mph on a motorway is cheaper than driving at 30mph in town. This is because driving in the city means there's a lot of stopping/moving off due to heavy traffic and that's where collisions are more likely. So depending whether your journey consists of driving around town, on motorways or dual carriageways and at what time you're driving, these will be reflected in your final bill.

Is the Pay Per Mile car insurance worth a try?

First of all, you will need to get a tracker device fitted to your car before you can be enrolled on the pay-as-you-go insurance policy. The tracker device is essentially a Global Positioning System (GPS) usually supplied free of charge by the insurer which will be installed by the insurers' professional team at a convenient time and location for you. You will then be billed every month for the miles you're doing. So new drivers who are quoted £3000 for car insurance will save the most because they will pay only for the journeys they make but they should avoid peak times to reduce their bills at the end of each month. Rest assured that you will not pay more than a traditional car insurance when you pay as you drive!

Although there are claims that drivers doing less than 6000 miles a year and new drivers paying higher premiums will save a lot of money, it is important to understand that the tracker device monitors the speed of the car among other details like hard braking and heavy acceleration. Therefore it could play against you in the event of an accident and affect your ability to claim. For example, if you were driving over the speed limit and crash your car, the insurer may refuse payout because they can dispute that you were being a careless driver who was speeding. However, a good thing about this tracker device is that it makes finding your car easier if it gets stolen. You should also be aware that the pay as you go car insurance is available for comprehensive cover only.