What are No Deposit, Short-term, and Pay-as-you-go Insurance Policies?

If you live in the UK, you may be asking what No Deposit, Short-term, and Pay-as-you-go insurance policies are. You may be a bit confused by these three types of cover, because they are very similar to each other. Many people even think that no deposit, short term, and pay-as-you-go are just different names for the exact same type of policy. However, there are a few differences that you should know about, so you won't purchase the wrong type of motor insurance cover.

No Deposit Insurance

No Deposit Car Insurance is a fairly new insurance scheme in the UK. Due to being a fairly new concept in the UK, only a few insurance companies offer a truly deposit free policy. However, despite being fairly new and harder to find, No Deposit Insurance is becoming very popular among consumers.

Consumers like the no deposit scheme because although they can be paid monthly they do not require an extra upfront deposit like most standard annual policies do. Although the policy is still a yearly contract, the premium can usually be spread out over 6, or 12 instalments. Most No Deposit policies can be set up as automatic debit bill payments, or can easily be paid for with a bank debit or credit card.

No Deposit Insurance offers the consumer a chance to retain more cash flow control, since they can choose when and how to make their premium payments. It also makes it easier for the consumer to cancel or modify their policies, or change to another insurance company. Since the premium has not been paid in one lump sum, the consumer can cancel a policy without having to wait a long time for a premium refund; do bear in mind however that insurers can charge quite heavily for cancellation so always read the terms and conditions carefully.

However, since insurers normally make their money by investing the interest made off premiums, they are hesitant to offer no deposit cover. The instalment payment plans create a bigger risk to insurers, as this makes it easier for the customer to skip out on premium payments. So despite the popular assumption that No Deposit Insurance coverage is cheaper than the standard annual premium, it usually is not. The insurer simply charges more for various other services rather than charging an upfront deposit. You would still be considered to be in the same insurance group with all the same risk factors as if you were paying a standard annual premium.

Short Term Motor Insurance

Short Term motor insurance is also popular in the UK and usually doesn't require an upfront deposit. Short term policies are for providing coverage for a set amount of time usually ranging from one to twenty-eight days. Thus, Short Term insurance lets you be more specific about whether you wish to continue the coverage from month to month, just like No Deposit and Pay-As-You-Go policies do. However, the longer you purchase Short Term cover for, the less economical they become.

Short Term Insurance is good to use if you are temporarily using a vehicle. For instance, short term cover is good for when your car breaks down and you have to borrow or rent a car from someone for a day, week, or month. It's also good for if you want to fill in a gap between motor policies or so you can take more time to do some in-depth comparison shopping for the best deal. Short term insurance is also great way of covering family members who don't drive very often, and just need cover for the days they do drive on.

Pay-As-You-Go Insurance

Pay-As-You-Go Insurance is also becoming very popular among UK drivers. It too permits the consumer to retain more cash flow control of money normally used for insurance premiums. This type of cover also offers the ease of setting up payment plans and cancelling or modifying the policy. Just like No Deposit and Short Term insurance cover, no upfront deposit is usually required.

However, the consumer should be aware that there are actually two primary types of Pay-As-You-Go Insurance. One type is a monthly contract instead of a yearly or bi-yearly contract. This type of Pay-As-You-Go cover is usually used by students and other drivers who cannot afford to purchase the standard yearly coverage due to poor economic conditions. As with Short Term insurance, this type of Pay-As-You-Go Insurance becomes less economically feasible the longer you purchase it for.

The other primary type of Pay-As-You-Go insurance is more commonly used by people who don't drive very often or very far. This type of coverage can be a monthly, bi-yearly, or yearly contract. It usually requires some type of monitoring device to be installed into the vehicle. Then the premium rates are based on how the vehicle is actually used. If the vehicle is driven more frequently than what was originally agreed to, the insurer can void the insurance contract or charge more for the policy.

Comparison Shopping

Whether you purchase Standard Yearly, No Deposit, Short Term, or Pay-As-You-Go coverage, you should always do some comparison shopping. Doing some in-depth comparison shopping can possibly save you money, time, and hassles later on. Recent surveys have revealed that 85% of UK drivers are paying too much for their current insurance cover, simply because they didn't shop around for better deals.

Nowadays, the internet makes it fairly easy to do some comparison shopping. There are many insurance comparison web sites available, and most of the reputable insurers now offer online services too. You should visit at least two comparison sites in insurers' websites in order to get a wider selection of offers. Many insurers even offer a discount just for buying the cover online. However, just be sure you know what each type of policy is being offered and what the benefits and drawbacks are for each type. Now that you know what No Deposit, Short Term, and Pay-As-You-Go Insurance policies are, you can more easily determine which fits yours needs best.

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