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, in order to use Pay As You Drive, you must consent to have your mileage monitored. Monitoring your mileage is not cost-free, and those costs are paid by the insured, not the insurance company. Especially for GPS monitoring, those costs can outweigh any savings gained by using Pay As You Drive. In addition, drivers have to get a new monitoring device any time they change insurance companies. That reality can make you think twice about changing companies just to get a lower rate.

Secondly, the companies that make the odometer tracking devices also charge a periodic fee for transmitting data. So, not only do you pay for the device, you pay to use it. This, again, possibly can eat away any savings from driving less when you use Pay As You Go.

Additionally, insurance companies would have to develop an entirely new payment structure in order to offer Pay As You Drive insurance to their customers. The insurance companies could then easily pass any costs associated with this new payment structure directly onto drivers, again removing any financial benefit gained from Pay As You Drive insurance.

Concerns have also been raised about the data gathered by the odometer tracking devices. Supporters of Pay As You Drive insurance claim the devices will only monitor the mileage necessary to compute the Pay As You Drive insurance premiums, but that could easily change. The devices could be revamped to gather additional data on drivers, including whether they drive, when and how often. This data could be then be passed along to the insurance providers, who could possibly use this information to justify rate increases for Pay As You Drive insurance premiums.

Those who favor Pay As You Drive insurance claim that less driving will result in fewer vehicle accidents. However, the relationship between vehicle miles traveled and accidents isn?t entirely proportional. Also, low mileage drivers are not necessarily safer, better drivers. A driver on a Pay As You Drive insurance program can just as easily have an accident as a driver who is on a more traditional insurance program.

On the surface, the cost savings of Pay As You Drive seem quite attractive. Drivers who are considering Pay As You Drive, however, should ask detailed questions before signing up for the plan. Gather as much information as you can to determine whether Pay As You Go is really right for you.

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