As the old saying goes, there’s nothing certain in this life except for death and taxes. Well, that may be true for life in general. But when it comes to owning and driving a car, there’s nothing certain except for taxes and car insurance.
Auto insurance is one of those things that you'll need to pay before you can let the rubber hit the road. There's absolutely no way of avoiding car insurance expenses, so people instead focus on finding ways to reduce the premiums they need to pay.
Insurance companies understand this, and to remain competitive, they always have innovative products up their sleeve to suit every driver’s needs. One such product is what’s commonly known as ‘pay-as-you-drive insurance’.
The idea is simple: instead of paying a flat insurance rate based on the usual factors like your age and the type of car you drive, what if you could spend less based on how much you drive?
Well, in this article we’re going to take a closer look at pay-as-you-drive insurance so you can decide whether or not you’ll be better off with it.
Let’s get started.
Auto Insurance Is All About Risk
First and foremost, let’s never forget that insurance is all about risk. The higher a risk you are on the road, the higher the insurance premiums you’ll pay.
Typically, insurance companies measure your risk level based on several different factors. On one side, you have your personal demographics like your age, gender, and where you live. For example, a younger male driver might be viewed as posing a higher risk when driving.
Besides that, your car and driving history will also have a strong influence on how much you’ll pay for auto insurance.
If you drive a cheap car and have never been in an accident in decades, your insurance premiums will likely be much lower.
Pay-as-you-drive insurance is unique because it gives the insurance company much more information to base their premiums on. Suppose you drive a lot less because you take public transportation most of the time. Well, then your insurance premiums are likely to be lower.
These days, cars are much more connected with technologies like telematics and the Internet-of-Things (IoT). With all that data, insurance companies can see whether you have safer driving habits, and they can ‘reward’ you for it by charging you less for insurance.
What Is Telematics?
One of the ways that pay-as-you-drive insurance companies track your driving habits is through the use of telematics. The term refers to technologies in your car that transmits information at all times, such as your car’s location, speed, driving distance, and so on.
Some insurance companies may place a telematics device in your car to track your driving habits and then charge you accordingly for auto insurance coverage.
Since it uses a technology that influences insurance costs, drive insurance is often referred to as telematics or black box insurance.
Telematics isn't the only way for insurance companies to gather the information they need. Sometimes, they might provide you with their tracking device to attach to your car. These days, though, cars are becoming increasingly connected by default. So, insurance companies may rely on that connectivity to track your driving habits instead.
Who Will Benefit from a Pay As You Drive Car Insurance?
At this point, you might already be able to guess who might benefit the most from pay-as-you-drive insurance. To give you a clear example, here are a few types of drivers that could save a lot of money with pay-as-you-drive insurance:
1. People Who Rely On Other Forms of Transportation
These days, there are plenty of other options to get around, even if we have a car. Some car owners tend to rely more on public transportation, rideshare services, or even friends and family to get around.
For these people, pay-as-you-drive insurance coverage might make more sense, considering how minimally they use their vehicle.
2. People Who Have Multiple Cars
Sometimes, people own more than one car. A perfect example of this would be a family that has more than one vehicle in their garage. They might not use their secondary vehicle frequently, and thus could save quite a bit by getting a pay-as-you-drive insurance policy on that lesser-used car.
3. Senior Citizens and Retirees Who Don’t Drive Much
Senior citizens and retirees might not drive around as much as they used to. Plus, they might rely on their families to drive them around most of the time. In this and any other situation where the car maintains a low mileage, pay-as-you-drive insurance makes a lot of sense rather than paying for regular, full-priced insurance coverage.
Does Pay-As-You-Drive Car Insurance Apply to Any Vehicle You Drive?
Typically, car insurance of any kind will only apply to the vehicle that you own, not necessarily any car that you drive. The exception, of course, would be if you are named on the insurance policy of whatever car it is that you’re driving.
Suppose you have a pay-as-you-drive insurance policy on your car. In most cases, your insurance policy will not apply if you’re driving a borrowed vehicle. Always remember that piece of information when you’re driving someone else’s car or when you let someone else operate your vehicle.
Remember: car insurance is highly customisable. So if you’re not sure about anything, or if you’d like to make changes to what kind of insurance coverage you have, always be sure to talk to your insurance company or agent about it.
Usually, they’ll work with you to adjust the insurance policy to suit your needs as best as possible.
Learn More about Car Insurances
To understand more about car insurances and your responsibilities as a driver, be sure to check out our Blog at Carpart.com.au. You’ll find tons of articles that’ll teach you a lot about owning and operating a motor vehicle. We also have useful tools that you can use for free, such as our Auto Part Finder. Try locating a car part today!
By Ray Hasbollah