A number of insurance companies are now offering so-called pay-as-you-go insurance, allowing motorists to vary the amount they pay depending on how far they have driven and the risk level of their car. But how does this work?

The car insurer fits a small device called a ‘black box’ to the insured car, which measures how fast the car is being driven and for how long. The information is sent back to the insurance company, which uses the data to work out the premium to be paid.

Generally, motorists opting for this cover will be charged a fixed annual amount on the basis that they will only drive a certain number of miles, and are changed extra if they exceed this amount. Then the insured person can purchase extra miles in 250-mile packages. The price of these packages will depend on the age of the driver and their driving experience.

Those who will benefit most from this type of insurance are likely to be motorists who are usually considered a higher risk, such as young men, but who do not drive very frequently.
This type of insurance is also likely to have positive environmental benefits as people will be encouraged to use their vehicles less frequently.

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