There are some similarities between pay-as-you-go cover and temporary insurance. But the differences are bigger and more important. Here we take a look at just what they are.
Car insurance has been going through quite a bit of change recently (and about time too, we say). Having pootled along for years without seeing much in the way of innovation, new technology's shaking up the insurance industry. Now, insurers – both new and old – are offering products that take a smarter approach to pricing.
That's good news. It means people are more likely to find products that reflect the way they use their car – especially if they're not the typical driver.
Take us, for example. We cater to lower mileage drivers by charging for the exact number of miles they drive, and not a penny more.
The bad news is – as with anything new – it can all be a little confusing. There's the lingo for a start. You'll see terms like 'telematics insurance' and 'black box insurance' flying around and it's not always clear what they mean, or how they're different.
On top of that, different insurers can have very different approaches. This means that even when two policies look the same on paper, they're often best suited to very different people.
In this article we're going to clear up:
- What pay-as-you-go car insurance is
- The different forms that it takes
- How pay-as-you-go car insurance is different to temporary car insurance
- When and why you might use one or the other
Let's get cracking...
What is pay-as-you-go car insurance?
Traditional insurers (the kind that work out your premium once a year based on an annual mileage estimate you've given them) base their premiums on how risky they think you are. Once your premium is set, how much you actually drive won't affect how much you pay.
If you decide you're going to leave the car at home and walk to work every day, you may drop a few pounds from your waist, but your insurance premiums probably won't get any slimmer.
With pay-as-you-go car insurance (sometimes simply referred to as PAYG car insurance or usage-based car insurance), that's not the case. Insurers will still look at your information to decide what level of risk you pose, but rather than using that information to come up with a fixed price for your policy, they come up with a rate. From there what you pay depends on how much you use your car.
Which raises the question: what do we mean by how much?
The different types of pay-as-you-go car insurance
That's an important question. We think the fairest way to charge people is, you guessed it, by their mileage.
At By Miles, we use a device called a Miles Tracker which measures the mileage driven by our members. This way, aside from the fixed annual cost that members pay at the start of the policy year to cover their car while it's parked, their monthly bills depend entirely on how far they actually drive.
Believe it or not, there are some other pay-per-mile car insurers out there, but most of them do things very differently to us.
Many will ask you to pay for the number of miles you think you need at the start of each month or year. If you guess too many then you're wasting money, and if you don't buy enough there's usually a charge for going over or for buying more miles. The way we see it, there's no need to guess when you can accurately measure instead.
Some pay-as-you-go car insurers don't measure distance at all. They prefer to charge their customers for the number of hours they use their vehicle.
Again, there are a few reasons we don't think that's ideal:
- Getting stuck in a lengthy traffic jam is bad enough as it is. Knowing that it's adding to your premiums is going to do as much for your mood as listening to the kids play another 25 rounds of 'I spy'.
- It means that, if you get to where you're going quicker, you'll save money. As an insurer, we don't really want to incentivise speed.
"OK" you're now saying quizzically to your screen, "but what if I hardly EVER drive? Wouldn't a time-based pay-as-you-go policy be ideal? I could just get a couple of hours insurance and never think about it again."
Indeed, you could, but then you'd be wanting temporary car insurance cover – and that's a very different thing...
What is temporary car insurance (and how is it different)?
Temporary cover is where you pay to insure yourself for a short period of time – from as little as an hour to as much as a month. It's different in a number of ways:
- It isn't strictly usage-based. You pay to cover yourself for a set period of time – how much you use the car within that time doesn't change how much you'll pay.
- Sometimes, as a condition of taking out short term insurance, the vehicle you're driving must already be insured by another person on a long-term basis. You're just adding an additional policy on top to cover you for a limited time.
- Once that period of time is up, you're no longer insured. That's a big difference. With pay-as-you-go insurance like ours, if your policy's active and you've paid your premiums, you're always insured even when you're not using your car.
This means the two products have very different uses. Pay-as-you-go insurance is geared towards covering regular usage for lower mileage drivers, while temporary auto insurance is all about covering you in unusual circumstances – most of which involve using someone else's vehicle.
Of course, if you do need to drive someone else's car, they could have their insurer add you as a named driver. But it's always worth being aware of the new players in the tech world who specialise in temporary cover. Often, they can arrange things more quickly and at a lower cost, too.
So, let's wrap this up by looking at which type of insurance might work best for you.
You might want to use pay-as-you-go car insurance if:
- You think you'll drive less than 7,000 miles per year and need long-term cover. (If you don't know what makes a low mileage driver, you might find this article helpful).
- You have multiple cars, some of which only cover a limited number of miles. For example, the car's that used for the school run and little more.
- You'd benefit from being able to control your insurance costs from month to month.
- You hardly ever drive your car but need to keep it insured as you can't get a SORN, or just want the extra flexibility.
You might want to use temporary car insurance if:
- You've just bought a new car and want to drive it off the garage forecourt, or from the previous owner's parking space.
- You're borrowing someone else's car for a short period (such as a holiday, or work trip).
- You're going on a long journey in someone else's car and want to share the driving.
- You're test driving a car or trying out someone else's ride.
And that's it - two very different products for different people.
Interested in pay-as-you-go car insurance? Get a quick car insurance estimate in less than 30 seconds here.