The Disadvantages of Pay as You Drive Insurance

Pay As You Drive plans are one of the most popular innovations in auto insurance of 2009. As their name suggests, Pay As You Drive plans charge drivers on the basis of how many miles they drive. Drive less, save more. In tough economic times, the idea of reducing this one monthly bill almost all of us have to pay is very appealing. However, Pay As You Go has a downside.

First off, if you use Pay As You Go, you have to allow your use of your car to be monitored. Monitoring your mileage is not free, and you pay those costs, not the insurance company. Especially if you have a GPS device installed, the costs of monitoring can be greater than the savings in your premiums. Moreover, if you change companies, you will have to change monitoring devices, too. That means you should think twice before you change companies just to get what appears to be a lower rate.

Second, the companies providing odometer tracking may also charge you a monthly fee for transmitting the data. You don’t just pay for the device, you pay to use it. This, too, can eat away any cost savings from your driving fewer miles.

Thirdly, insurers have had to develop a totally new price structure in order to offer Pay As You Go. This makes it easier for them to pass new costs on to drivers, again, canceling out any benefit derived from your frugal driving.

There are also concerns about how odometer data may be used. While it may be true that the monitoring devices will only provide the data needed to compute premiums, there is always the possibility that the monitors could be modified to tell the company not just how far you drive, but where, when, and how often. This information about where you could go could then be used to raise your rates, or for some other purpose entirely.

Supporters of Pay As You Drive plans assert that driving less will result in fewer accidents. However, the correlation between miles driven and number of accidents is not necessarily simple. Low-mileage drivers are not necessarily safer drivers. It is just as easy for a Pay As You Drive driver to get into a crash as a driver covered by a more traditional insurance program.

The potential financial benefits from Pay As You Drive insurance make the program look very attractive on the surface. However,drivers who are considering Pay As You Drive car insurance should contact a qualified insurance provider and ask detailed questions. Gather as much information as possible in order to accurately decide if Pay As You Drive insurance is right for you.

Tom Martens is the content syndication coordinator for Carinsurancesa.co.za. South Arica?s leading car insurance portal.