Benefits of “Pay as You Drive” Car Insurance

Car Insurance Premiums can hit your pocket hard; I learnt it the hard way at a pretty young age. I had got my first car, an old Chevy, in high school and I got my first and last speeding ticket within the first month. I was pretty ignorant about the effect I would have on my premium until my father gave me the bill and asked me to pay it from my savings. Since that incident I have been extra cautious while driving and dread that a small mistake on my part may leave a big hole in my pocket. Year after year I get rewarded because of my good driving practices by a small discount in premium amount. But my outlook regarding car premium, I paid, changed after I ended up paying similar premium last year, as for half of the year I was not in country and didn't drive as much as I usually drive. That’s when my friend suggested to me to go for Usage-based Insurance.

We all know that premiums are usually based on our age, gender, driving history, marital status and vehicle type among various other generic factors. Pay as You Drive (PAYD) Car Insurance is the insurance where you pay your premiums depending on your usage pattern i.e. kilometers we cover, how you drive, how often you brake, what speeds you maintain, etc. If you are thinking how these companies do get to know all these details about you, well they install a small device on your car’s dashboard to monitor various parameters. These devices may have an inbuilt GPS too.

Under this scheme, you, as a driver, need to approach auto insurance and choose range of distance you will cover over next year and get a quote. Companies provide you an option to get a ‘top-up’ mid-term, in case you feel you will exceed the distance limit.

Benefits of going for Pay as You Drive Insurance

Before you go about reading through advantages of this system let me give you an analogy which will impress upon you how and why you can gain from it. You might have been for both buffet and a la carte dinning at some point of time. In buffet you pay a fixed amount of sum for unlimited meal while in a la carte you get to choose food you wish to eat and pay accordingly. I have experienced, in buffet we invariably end up eating a lot more if food is good or we end up cribbing that we wasted our money for such a bad food. Fixed premium and usage based premium is somewhat similar.

1) Save Money: If you are not the one who spends half of the year on road driving around than I am sure this scheme is just perfect for you. By usage based insurance one can cut down up to 35% on premium expenditure without compromising on risk cover.

2) Saves Fuel: An extra incentive of saving on premium will encourage you as driver to not waste fuel for a ride just round the corner of road. You will be encouraged to use public transport or a car pool.

3) Good for Environment: Cutting down on fuel will help to cut down on pollution as well. It will help in reducing our excessive dependency on fossil fuels.J

4) Anti-theft mechanism: If GPS is present in the monitoring device you will be able to track-down stolen vehicles easily.

5) Decrease in number of accidents: With fewer vehicles on road I am sure number of accidents will reduce too.

6) Good Driving Practices: All type of car insurances help in infusing and cultivating good driving practices as at the back of the mind every driver fears the increase in premium which his little negligence can have. PAYD adds another dimension which also provokes car drivers to drive only when it’s essential.

7) Insurance in true sense: Insurance is the cover provided depending on risks one faces. If you drive less you are bound to be at lesser risk, so you should be paying less premium. Thus unlike traditional premium rates, your premium will be charged depending on your ‘real risks’.

Challenges in PAYD insurance

Although this scheme is not new but it is evolving like never before with all new tracking technologies coming up. Still it faces some challenges even as drivers are wary that GPS system breaches their privacy. On the other hand, auto Insurance companies still have not set rates in place as it requires an intensive research to determine the risk each insurer faces.

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