Pay as you go car insurance or telematics, is increasing in popularity — we take a look at how it works and the pros and cons to such policies.
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Traditional car insurance for most drivers offers the peace of mind knowing that they are covered to drive throughout the year, until their policy expires. Paying monthly or annually allows an opportunity to budget, and drive confidently knowing that should an accident occur the insurance company will take care of the problem.
However, for drivers only using their cars once in a while, the high cost of car insurance can be pretty hard to stomach. What’s more, drivers belonging to so-called high-risk groups, such as young and elderly drivers, are often hit with hefty premiums, despite only using their cars infrequently.
One solution to this comes in the form of pay as you go car insurance policies, which allow you to pay for only the amount you drive.
While pay as you go car insurance has until now been associated with black box insurance policies, innovative companies have begun to offer ‘true’ pay as you go car insurance cover.
As technology advances, there are a number of different charging plans, which might be helpful if you don’t use your car all the time.
Temporary car insurance vs pay as you go car insurance
Temporary car insurance shouldn't be confused with pay as you go insurance.
Temporary insurance means just that, it only lasts for a set period of time. It could be hourly, but usually it's between 1 -28 days. Once this period ends you start again.
This is a great option for those who are borrowing a car, or taking a new car home from their seller.
You can compare temporary car insurance with our partner money.co.uk below:
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Types of pay as you go car insurance
The following different types of car insurance policy could all be considered ‘pay as you go’, but only some of these offer ‘true’ pay as you go capability:
- Black box (or telematics) policies
- Pay per mile car insurance
- Pay per hour car insurance
Black box car insurance
Black box insurance is also known telelmatics. The nickname black box was given to refer to the small device insurers install in the policyholder’s car to measure driving behaviour. The official name is telematics car insurance. While there are now many types of black box insurance policies that do not use this device, the name is shorthand for any programme that monitors or records your driving style.
It either works by using the small device, or by using an app downloaded to your smartphone. The box or app then uses satellite technology to track mileage.
Normally, drivers are charged a set amount per year and allowed to drive a certain number of miles before being charged extra. Pay as you go insurers allow you to top up in bundles of miles which you can roll over to the following year if unused.
Many telematics boxes also track things like acceleration, braking, cornering, and journey time, enabling insurers to take these factors into account when working out the cost of premiums. With most policies you can also monitor your driving behaviour online or via the app, and some insurers will offer rewards and discounts for drivers that demonstrate safe behaviour on the roads.
With statistics showing that young drivers are more likely to have accidents and make insurance claims than any other age group, this age group is likely to benefit most from black box car insurance.
Drivers using their cars outside of peak traffic hours could also save, as some insurers charge less for miles driven when the roads are emptier and accidents less likely.
Pay per mile car insurance
While some black box policies are based on the number of miles you drive, new technology is emerging that allows you to truly pay as you drive.
By Miles is the first insurer to offer this type of pay as you go cover in the UK. The policy is based on a monthly flat rate to cover your car while it's not in use, plus a per-mile rate for the exact mileage you cover.
Mileage is measured by a Miles Tracker than plugs into your car, combined with an app on your mobile phone. At the end of the month you are billed for the miles you drive, as well as your monthly flat rate.
This type of 'true' pay as you go car insurance policy could be beneficial for drivers that don't use their car on a regular basis, or those that use their car more regularly for short trips.
Pay per hour car insurance
You can also take out pay as you go car insurance based on time (rather than mileage), for example with Cuvva's subscription option.
This type of policy works by taking out a subscription to cover your car while it's not in use, plus using a mobile app to purchase cover by the hour or day when you plan to drive.
Advantages and disadvantages of pay as you go insurance
To work out which is right for you we look at the pros and cons of this type of insurance.
Cost - The main advatage is the less that you are driving, the less you will have to pay each month or year. Instead of being charged for specifics associated to assumptions about your age or postcode, you'll be charged by the miles you complete.
If you're a young driver who can't afford the premiums of traditional insurance, this might be a good option.
Flexibility - You can cancel at anytime once you give some notice. But unlike traditional insurance, you're not likely to have to pay the usual cancellation fees.
Mileage - Depending on how much you actually drive, will determine whether this is the right cover for you. If you end up covering a lot of miles during your cover, you could end up paying more than you would if you'd taken out a traditional policy.