What is Pay How You Drive Car Insurance & How Does it Work?

Apr 26, 2011
Carol Finch

How Can Pay How You Drive Insurance Save Money for Younger Drivers? - Photo by asifthebes

Younger drivers could cut high car insurance costs by using pay how you drive policies. How does this work and what are the advantages & disadvantages?

The costs of standard car insurance for young drivers can be extremely high given the risk factors of age and inexperience. Policies that use telematic devices to monitor driving habits and that are then priced on a rewards system could cut costs and help younger people learn how to drive more safely. What is a pay how you drive policy, how does it work and what are the pros and cons?

What Is Pay How You Drive Insurance?

Standard car insurance policies are costed on risk. So, if drivers are perceived to fall into a high-risk category, based on factors such as age and driving experience (or lack of it), they will pay a lot more than someone in a lower group. Pay how you drive policies work slightly differently. Their costs are also based on actual driver behaviour and habits and not just on traditional risk categories. Younger drivers could benefit as charges could be lower than standard products if they drive safely.

How Does Telematic Based Car Insurance Work?

These policies require that the driver has a small device (often known as a smartbox) fitted to their vehicle. This monitors elements of driving behaviour such as:

Journeys and distance.
Times of travel.
Road types.
Driving speed.
Acceleration, braking and cornering habits.
Accidents.

The data provided allows the insurer to assess how safely a car is being driven. Good habits can be rewarded; bad driving may see the driver lose out on possible benefits. Although individual insurers may have different ways of charging for a policy, most are paid for by the mile.

So, you may be asked to pay a premium up front to buy so many thousand miles (with the option of adding mileage 'top-ups' later). Once your smartbox is fitted, you will be regularly assessed to see how you drive over time. Safe driving could get you reduced premiums, lower future charges or free mileage add-ons whilst bad driving could see you charged extra or lose out on cost-saving rewards.

What are the Advantages and Disadvantages of Pay How You Drive Car Insurance?

Buying policies that are costed based on driving habits can work out cheaper for some younger drivers and can promote more responsible on the road behaviour. This model can also give a useful alternative for people who don't drive that often and who are considering mileage based insurance such as pay as you drive cover.

Bear in mind that this kind of policy still has to factor in traditional risk models, at least to start with. Although most younger drivers should see some cost benefits, actual savings may still depend on age, experience and driving records. These policies are also usually restricted to the car in which the telematic device is fitted, so you won't necessarily be insured to drive anyone else's vehicle.

If your policy runs on a 'top up' system, you'll generally be given a warning when you need to buy more miles. Some companies will then go on to charge you automatically if you do not add mileage yourself. If this system doesn't work, however, and the insurer cannot take payment, you could be left without any cover if the policy is then cancelled.

All in all, this kind of car insurance may take more effort than a standard product but could see significant cost savings. It is still important to shop around and compare policies to make sure that this will be the most effective option. If you do not feel that this model will work well for you, then you may find it useful to look at other ways of saving money on car insurance for young drivers.