Pay insurance premium as you drive

The usage based policy or the pay as you drive (PAYD) policy introduced recently in Australian car insurance market is a great boon for people who are infrequent drivers spending much less time on the road driving as compared to an average person. The traditional car insurance policy basically discriminates against those drivers who drive less and are therefore involved in less car accidents as compared to those who spend more time on the drive and are naturally involved in more number of accidents. This policy basically results into low-mileage drivers subsidizing the insurance cost of high-mileage drivers.

The PAYD policy is designed for people above the age of 25 years, with provision to roll over or get a refund of the unused kilometers. Even new kilometers can be purchased to top up the existing limit without much hassle just over phone. There is a discount in the premium if no claim has been made in the first three years after taking the policy. This policy has the potential to become extremely popular among infrequent drivers, as the new policy may end up in a substantial amount of saving.

This kind of policy has been introduced in a number of countries, with some variations. In some countries, the insurance premium is determined dynamically based on current usage, day and time the vehicle is taken out on the road, etc. Some countries also have a strictly kilometer-based policy, and companies use different methodology to monitor the car. In some cases, the cover is based on simply the odometer reading of the car, while in others, the car is tracked by a GPS device fitted in the car.

This concept is beneficial to the insurance company as well, because there is a better alignment of insurance premium with actual risk as compared to the traditional policy. However, you have to be a good driver to qualify for this policy, as the premium could go quite high if you get involved in an accident. If you are a careful driver, not used to speeding unnecessarily on the highways, then it is a good option where you can have a complete control over your insurance cost during a particular year, as the less you drive, the less you pay.