Dubai: If you don't drive much throughout the year, pay-as-you-drive car insurance plans (also known as usage-based car insurance plans) can provide a money-saving solution for you, and each month, your rate will vary based on how much you drive. The less you drive, the more you'll save.
“Pay-as-you drive insurance plans work as per the driving habits of the owner-driver and the usage. These plans are highly cost-effective and can be customised individually for each vehicle under consideration,” said Ibrahim Riba, a senior car insurance salesman based in Abu Dhabi.
“The premium for these plans is majorly decided as per the number of kilometres you drive your car. Think of it as a normal comprehensive car insurance plan but with an added discount in the premiums depending on the usage of your car.”
The premium for these plans is majorly decided as per the number of kilometres you drive your car
Being charged for only how much you use your car
So to put it simply, pay-as-you-drive car insurance plans essentially are auto insurance options that work a bit like pay-per-minute telephone plans, where you're only charged for what you use.
“The generic procedure of how pay as you drive car insurance works is pretty similar to any basic car insurance plan. The only thing different is the kilometre slabs of the insurance plans,” added Riba.
“In order to accurately determine how much you're driving, you will receive a small wireless device that plugs into your vehicle's on-board diagnostics port. This will alert your insurance company to how many miles you drove, so they can determine your monthly bill.”
How do pay-as-you-drive insurance plans work?
When you buy your pay-as-you-drive insurance plan, you are required to choose a driving slab. This slab will contain the number of kilometres you expect to drive your car during the tenure of the plan.
Once you choose your required slab, the insurance premium of your plan is adjusted. The basic slabs you will find for pay you go car insurance plans include less than 3,000 kilometres, 3,000 to 5,000 kilometres and more than 5,000 kilometres.
There can be a slight change in these numbers as per the plan and the providers. In addition to choosing a slab, you will be asked to enter details about the odometer of the car as well.
You can then top-up your pay as you drive insurance plan if you happen to exceed the kilometre limit currently active. If no claims were made during the tenure, you can even switch to another coverage with a higher limit on kilometre slabs. The premium rates will be charged on a pro-rated basis.
The premium you pay when refilling or opting for another coverage will only be for the own damage insurance part of the plan. The third-party coverage will continue till the end of the tenure.
How much can you save with these insurance plans?
“Multiple global insurers approximate that that if you drive less than 8,000 kilometres a year, you could pay 40 per cent to 50 per cent less than you would with a traditional insurance plan,” explained Pamela Barbaglia, an insurance analyst based in Dubai.
“In fact, they also estimate that 65 per cent of drivers are overpaying for their insurance. These types of plans are especially beneficial to drivers who don't drive very often and people who are paying high insurance rates due to their age or credit history.”
Barbaglia further explained with most insurers who offer this service, once you enroll, you will pay a low monthly base rate, plus a charge per kilometre of driving.
For instance, if you drive more than 250 kilometres per day, you won't be charged for the extra kilometres above the cap, which means you won't overpay on a long trip. Other factors can also affect your rate, including age, vehicle, and driver history.
Key risk: Limiting your coverage can prove costly
“Many drivers will limit their coverage to save money when they don't drive often. However, this can end up costing you more in the end if you do get in an accident. Instead, a pay-as-you-drive plan can provide the coverage you need and save you money every month,” added Barbaglia.
Some insurers claim that you will save anywhere from 20 per cent to 50 per cent on your premium, and certain providers will even offer an immediate discount just for installing the tracking device to your vehicle's on-board diagnostics port.
Additionally, both Riba and Barbaglia agree that you can get an accurate idea of how much you can save by comparing your current auto insurance costs to what you would spend using a simple plan.
A pay-as-you-drive plan can provide the coverage you need and save you money every month
Verdict: Is pay-as-you-drive car right for you?
Along with deciding whether to sign up for this type of plan, you will also need to find the right insurance provider. Several websites also help you determine what type of discount you can expect, what's measured, and what's available in your state.
Even with significantly lower car insurance premiums, pay-as-you-go car insurance plans offer the same level of comprehensiveness as normal car insurance plans. All the benefits you receive are the same as those in basic comprehensive plans, and so are the limits and sub-limits.
You can also get pay as you go car insurance plans as multi-car insurance plans as well. If you drive multiple cars or have family cars of your spouse or parents, you can buy a linked car insurance policy for all of them.
However, the premium you pay for your pay-as-you-go car insurance plan is dependent on how much you drive your car and the way you drive it. If you are someone who does not use their car every day or very often, pay-as-you-go car insurance is perfect for you. If you do drive often, it can prove very costly.