Is pay-as-you-go car cover cheaper?

Posted on: 15 April 2010 by Mark O'haire

The latest pay-as-you-go car insurance launches this week using a satellite black box to monitor how a car is driven and reward careful drivers.

A new scheme has been launched promising to reward safer drivers and provide greater control over the cost of car insurance premiums.

Pay-as-you-go coverage works by attaching a small device, known as a 'black box' (no larger than a mobile phone), to your car, which measures details such as driving speed, location and time and feeds the info back to your insurer.

This will, in turn, determine your insurance rates.

A spokesman from the company offering the service, Coverbox Car Insurance, said it works exactly the same way as pay-as-you-go mobile phones: you only pay when you use your car.

The service also includes an anti-theft device that tracks your car in the event of it being stolen and a safety alert in case of a potential accident.

Safe drivers could benefit

Because the service monitors risk and the extent of driving you do, it could help certain drivers under 25 cut costs. This group generally has to pay the highest premiums as they are considered the riskiest demographic to insure.

Currently, there are only a few providers that offer this type of coverage. Coverbox, Insure the Box and Co-operative Insurance.

How it works

The black box that is fitted to your vehicle transmits the details of your journey through satellite to your insurance company. Each month, you will receive a bill calculated from the information sent by the device for all the driving you have done.

Two main factors determine your bill: the time of day you're in your car and the types of roads you drive on.

According to the AA, the majority of accidents caused by young drivers occur in the evening between 11pm and 6am.

During these times, drivers could be paying as much as £1 for each mile (although the price varies depending on the individual) as opposed to significantly lower rates during the day.

You will also pay more for driving in urban areas than on the motorway where you are less likely to get into an accident.

What you pay

You will be billed every month for the miles you've driven. So young drivers who are quoted thousands for car insurance will save the most because they will pay only for the time they are in the car.

The pay-as-you-go coverage charges you a basic premium and a price for the additional mileage you drive.

All rates vary depending on the individual. As with most insurance, you will be expected to provide various details that calculate an annual premium.

You have to provide an estimate of how much you expect to drive for the year and they will forecast a premium for you.

If you do not exceed that number of miles you will receive some money back and your premium will reduce but if you go over, you may end up paying more.

You can also check your daily miles online to help keep track and put you in control of the costs.

Again, the price you can expect to pay for extra miles all depends on your driving record, where you are driving and your age.

Cause for concern

A tracking device may seem like an invasion of privacy to some people.

It is important to understand that the tracker device monitors the speed of the car and other driving habits such as frequent and abrupt starting and stopping and hard braking or frequent, heavy acceleration.

Therefore it could play against you in the event of an accident and affect your ability for claims.

Some are concerned that the black boxes may be used to collect incriminating data against the driver - such as breaches of the speed limit.

This may deter some riskier drivers as it may have a damaging affect on their insurance premiums later on.

Another disadvantage is that when you go over your allotted miles, the cost of the extra miles could be expensive.

Rewards

Pay-as-you-go policies give people an incentive to ride bikes or use public transportation rather than drive, which is budget friendly with the increase of fuel duty. This also means less pollution and fewer road accidents.

This type of policy could be a cheaper alternative for young drivers and high risk drivers, possibly cutting rates for those between 18 and 21 and others who tend to pay extremely high insurance premiums.

Another upside to the tracker device is that it makes finding your car easier when stolen.

Some find the act of tracking your driving an invasion of privacy but many low mileage drivers are willing to give up this information for the incentive to save money.

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