Say Ramesh and Suresh brought the same car model at the same price at the same time. Ramesh regularly travels long distances for work and vacations. Suresh uses his car when public transport is unavailable because he isn’t very fond of driving. Ramesh and Suresh own comprehensive car insurance plans and the insurer charges similar premiums to the both of them, despite Ramesh using his car around 4 times more than Suresh and thereby, being more exposed to damage than Suresh.
Pay As You Drive (PAYD) Car Insurance is here to change the game. If you don’t use your car very often, you can pay a variable premium based on usage and not a flat premium rate per year.
PAYD was introduced to the Indian market in 2020, after various insurance companies proposed it under IRDAI’s regulatory sandbox. Currently, only a few insurance companies offer these plans.
Let’s have a look at what Pay As You Drive Insurance is and how it works.
What is Pay As You Drive Insurance?
Pay as you drive insurance or usage-based motor insurance is a type of car insurance where you pay the own-damage premium based on the distance covered by your car. Thus, the premium is determined by the usage of your car.
This policy offers a mandatory third-party cover and a comprehensive cover.
Third Party Cover
It provides coverage against damages incurred to another person or property involving your vehicle.
It provides a much broader coverage by protecting you against own-damages as well as damages incurred to another person or property.
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How Does Pay As You Drive Insurance Work?
Unlike a standard comprehensive policy, a pay-as-you-drive policy has a different process. Let’s take a look at the steps involved -
Selecting The Kilometre Slab
The insurance premiums are primarily based on the number of kilometres driven and your driving habits. The insurance company will ask you to pick a kilometre slab for the year and the premium will be adjusted accordingly. So, the less you drive, the less you pay!
The slab values may vary across insurance companies. For instance, Bajaj Allianz asks you to enter your current odometer reading and select a slab. Their slab value ranges from 3000 km - 15,000 km for a year. The premiums will be decided based on the slab you choose.
Installing A Tracking Device
The insurance company will then ask you to install a telematic device in your car. This helps them track the distance you drive, how well you drive, the speed, and the remaining kilometres.
If you reach your slab limit, you can top it up or refill it. This process may differ from insurer to insurer.
Features of Pay As You Drive Insurance
It Is Customisable
You can customise your plan based on your car usage, i.e., you can select the kilometre slab according to how much you drive. If you’re someone who drives occasionally, you can select a lower slab and pay a lower premium.
Compared to a standard comprehensive car policy, PAYD policies cost much less - since the premium calculation is based on car usage.
Comprehensive policies do not take into account the distance covered and you are required to pay a standard premium.
When it comes to PAYD policies, you pay a premium based on the distance travelled by your car.
Kilometre Slab Refilling
You can also top-up your chosen slab if it is exhausted or is about to be exhausted. So, your policy will be tailored to your needs.
Add-ons are optional benefits that you can purchase with your policy to enhance coverage. Add-ons available with a standard comprehensive policy are also included with PAYD policies.
Tracking With Telematics
With the help of the tracking device, both you and the insurer can track the kilometres you have driven and your driving behaviour.
Pros of Pay As You Drive Car Insurance
The premiums will be lower than comprehensive plans since the rate is decided based on the car's usage.
Both you and the insurer can keep track of the kilometres driven, driving behaviour, and remaining kilometres. For instance, you can track the kilometres driven and refill the slab as and when the limit is exhausted.
Cons of Pay As You Drive Car Insurance
Invasion Of Privacy
Your telematics device shall record every minute detail including the distance covered, location, and your driving habits. This invasion of privacy may be perceived as a negative aspect.
Not A Good Option For People Who Drive A Lot
Pay as you drive insurance charges you based on the distance you drive. When you travel frequently and use your car more often, your insurance premiums will increase because you cover more distance. In such cases, you can compare the rates with the comprehensive plan and then decide whether or not to purchase it.
What is Covered in The Pay As You Drive Insurance Policy?
Here's what the Pay As You Drive (PAYD) insurance policy offers –
It protects you against damages caused to another person or their property in the event of an accident involving your vehicle.
It offers an extensive range of protection covering own damages as well as damages incurred to another person or property.
What is not Covered Under The Pay As You Drive Insurance Policy?
Here are some of the situations not covered by Pay As You Drive(PAYD) insurance -
1️⃣Driving Without A Valid Licence
In the event of an accident, if you are found to be driving without a valid licence, your insurance claim may be denied, leaving you personally liable for damages.
This policy will not cover damages incurred while you are under the influence of alcohol, drugs, etc.
3️⃣Electrical Or Mechanical Failure
Damages caused by electrical or mechanical failures are not covered by the Pay As You Drive(PAYD) insurance policy. Regular maintenance and timely repairs are important to pertinent such failures.
4️⃣Depreciation Due To Wear And Tear
The Pay As You Drive(PAYD) insurance policy does not cover the gradual decrease in the vehicle's value due to normal wear and tear caused by everyday use.
Pay As You Go (Switch on/Switch off) Model
This insurance cover caters to car owners who don't frequently use their vehicles. It grants you the ability to activate the damage cover when you're actively driving and switch it off when it is not in use. An interesting benefit is that certain insurance companies provide a bonus – an extra day of coverage – for every continuous 24-hour period when your Own Damage (OD) cover is turned off.
Importance of Pay As You Drive Insurance
Here are some aspects that highlight the significance of Pay As You Drive(PAYD) Insurance -
1️⃣Fairness and Precision
In the traditional insurance setup, premium rates are typically based on broad assumptions about drivers, which might not truly represent an individual's real risk on the road. Pay As You Drive(PAYD) insurance offers a much more precise assessment of risk, considering the distance you travel and your specific driving habits. This means if you're someone who drives less or follows safer driving practices, you'll pay lesser premiums.
2️⃣Incentive for Responsible Driving
Pay As You Drive(PAYD) insurance establishes a direct connection between how you drive and what you pay for your insurance policy. When you're aware that your premiums are directly tied to your driving habits, it becomes a powerful incentive to drive more safely. People tend to adopt better practices, like sticking to speed limits, avoiding aggressive driving, and just being more cautious overall. It's like having a personal stake in your own safety, and that's a win-win for everyone on the road.
Traditional insurance models may not suit those with infrequent vehicle usage, resulting in elevated premiums. On the other hand, Pay As You Drive(PAYD) insurance proves useful for individuals who don't drive often. It is a more economical option for such drivers.
4️⃣Integration of Technology
The continuous evolution of telematics and connected car technologies has significantly simplified the integration of Pay As You Drive (PAYD) systems. Insurers now have the capability to leverage devices or mobile applications to monitor and analyse driving behaviour in real time. This enables a more detailed and precise evaluation of various risk factors associated with individual driving habits.
5️⃣Flexibility And Control
Pay As You Drive car insurance empowers customers with heightened flexibility and control regarding their insurance costs. You can manage your premiums by making adjustments to your driving habits or selecting coverage plans that best suit your preferences. This approach enables a more personalised and adaptable insurance experience.
Benefits Available Under Pay As You Drive Insurance
Here are some of the compelling reasons why Pay As You Drive car insurance is worth considering -
With Pay As You Drive insurance, you have the freedom to personalise your plan to match your specific car usage. You can choose the kilometre slab that best fits your driving habits. For instance, if you don't drive frequently, you have the option to select a lower slab, leading to a more affordable premium.
Choosing a Pay As You Drive (PAYD) insurance policy can significantly cut down on your insurance expenses when compared to a typical comprehensive car policy. Comprehensive policies charge a standard premium without considering the distance covered. However, in Pay As You Drive car insurance, your premium is directly tied to the actual distance travelled by your car. This means you only pay for the coverage you use.
You also have the flexibility to enhance your coverage with optional benefits known as add-ons, which can be purchased along with your policy. And the good news is that the same add-ons that are offered with a regular comprehensive policy are also available with Pay As You Drive insurance policies.
4️⃣Tracking Ability With Telematics
By using the tracking device, both you and the insurer can keep tabs on the distance you've covered and your driving behaviour.
You have the option to upgrade your selected kilometre slab if it's nearing exhaustion or has already been used up. This flexibility allows you to tailor your policy, ensuring it aligns precisely with your needs.
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Why Should You Buy Pay As You Drive Insurance?
Here's why you need to consider purchasing Pay As You Drive car insurance -
1️⃣Offers Third-party Coverage
Pay As You Drive insurance provides third-party coverage safeguarding you, the vehicle owner, against legal liabilities arising from incidents such as injury, death, or property damage caused to a third party involving your vehicle.
2️⃣Tracks Your Kilometres
To keep tabs on your mileage, insurance companies provide a complimentary telematics device in your car. This handy tool not only helps you monitor your kilometres but also sends reminders when you approach your limit. This device acts like a personal car health assistant, offering insights into your vehicle's well-being. It helps you prevent accidents by staying informed about your car's condition and making necessary improvements.
3️⃣Easy on Your Wallet
Typically, insurance companies determine premiums by considering various factors like geographical locations, motor capacity, cubic capacity, model, engine type, age, brand of car, etc. These factors can often lead to increased premiums. However, with Pay As You Drive Motor Insurance, the primary focus is on one crucial factor – the number of kilometres you drive.
What Happens if You Exhaust The Declared Car Usage Limit?
If your car surpasses the declared usage limit, you won't be required to pay an extra premium, and your policy coverage will persist. However, during the claim settlement, the insurer might request an additional payment in the form of a co-payment. A co-payment is a certain percentage of the approved claim amount you need to pay from your end before your insurer steps in to pay the rest. It's important to note that this procedure can vary among insurers. For more precise details, it's advisable to get in touch with your insurance provider directly.
Things to Keep in Mind Before Buying Pay as You Drive Insurance Cover
Before committing to the policy, here are some important aspects you should be mindful of -
1️⃣Cost-effective Strategy For Multiple Car Owners
If you have more than one car, consider opting for the Pay As You Drive cover for the vehicle that sees the least use, typically less than 10,000 to 15,000 km annually. This way, you can potentially maximise cost savings.
If you drive your vehicle less than 10,000 to 15,000 km per year, rely on public transport for daily commuting, frequently travel outstations, or seldom use your car, the Pay As You Drive motor insurance policy is the ideal plan for your needs.
Take a closer look at the coverage options provided by Pay As You Drive insurance policies. Make sure that the coverage matches your specific needs and offers ample protection. If necessary, explore additional coverage options like comprehensive coverage, roadside assistance, etc., to ensure your insurance plan provides the level of protection you're looking for.
Before signing up for a Pay As You Drive insurance policy, check the technology requirements it entails. Some policies may mandate the installation of a telematics device in your vehicle, while others rely on mobile apps. It's crucial to confirm that your vehicle is compatible with the specified technology to ensure a seamless integration with the Pay As You Drive system.
Make sure to ask the insurance company about the steps they take to keep the data collected from your vehicle secure. It's important to know how they protect your personal and driving-related information, addressing any worries you might have about privacy and security. This way, you can make a decision about the policy with confidence, knowing that your data is handled with care.
6️⃣Comparison With Standard Motor Insurance Policies
Make sure to compare the costs and coverage provided by Pay As You Drive policies against traditional insurance choices. Take a closer look at whether the potential benefits, like lower premiums for safe driving, etc., outweigh any potential downsides. Weigh both the pros and cons to find the insurance option that best suits your situation.
7️⃣Terms And Conditions
Before making a final decision, make it a point to go through the policy documents carefully. Take the time to understand any exclusions or limitations outlined in the fine print. Be mindful of situations where the coverage may not apply. And, if you come across any uncertainties or questions, don't hesitate to reach out to the insurance provider for clarification.
Comparison Between A Comprehensive Policy And Pay As You Drive
|Pay as you drive Plan
|A comprehensive plan is a standard plan that provides both own damages as well as third-party coverage.
|Pay as you drive is a usage-based plan launched recently.
|The premium is determined based on -
Make and model of the car.
Place of registration, etc.
|The premium depends on the kilometre slab selected for that particular year. If the usage of the car is less, then the premium will be lower.
|There is no usage limit in a comprehensive policy, so you can drive the car for as long as the policy expires.
|The usage is limited to the kilometre slab selected. You will need to refill the slab if the limit is exhausted.
|Claims can be made for both own damage and third party within the policy period as per the terms and conditions of the policy.
|Own damage claims can be made according to the terms and conditions of the policy within the validity period of the selected slab. You can file a third-party claim as long as your third party coverage is valid.
Top Car Insurance Plans
Now, let's explore some of the top car insurance plans in the Indian market -
- Bajaj Allianz General Insurance Company
- Go Digit Insurance Company
- Future Generali Insurance Company
- Iffco Tokio Insurance Company
- Kotak General Insurance Company
- New India Assurance Company
- Oriental Insurance Company
- Reliance General Insurance Company
- National Insurance Company
- Zuno General Insurance Company
Who Should Buy Pay As You Drive Insurance?
Since the premium is based on the usage of the car, this plan is suitable if –
- You rarely drive.
- You own multiple cars but aren't likely to use all of them.
- You primarily travel by public transportation.
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What is Pay As You Drive insurance?
Pay As You Drive insurance is designed for individuals who drive their vehicles less frequently. This insurance model allows you to pay premiums based on the exact usage of your vehicle.
- Will you need any documents to buy Pay As You Drive cover in India?
Buying Pay As You Drive insurance is a straightforward process. All you typically need to do is provide the details of your vehicle. Some insurance companies may additionally request that you click and upload pictures of your vehicle from all sides before finalising the purchase.
- When can I claim against my Pay As You Drive insurance policy?
You are eligible to make a claim under your Pay As You Go insurance policy as long as you haven't exceeded the predetermined kilometre limit.
- Will any telematics device be installed in your car if you get the Pay As You Drive insurance policy?
Many insurance companies typically install a telematics device in your car. This device serves the purpose of tracking and monitoring your car's usage.
- Is Pay as You Drive insurance good?
Pay As You Go insurance is an ideal choice for individuals who don't use their cars frequently. In this type of insurance, you pay premiums based on the exact usage of your vehicle.
- What kind of documentation will I need to opt for Pay As You Drive car insurance cover?
When purchasing Pay As You Go insurance online, you typically only need to provide your vehicle details, and there's no requirement for document submission. However, some insurance companies might request additional documentation, such as KYC (Know Your Customer) details and photos of your vehicle from all sides.
- What happens if I cross the distance travelled slab and do not inform the insurance company about it?
Insurance providers utilise the telematics device installed in your car to track its usage. In Pay As You Drive insurance, if you exceed the distance covered slab specified in your policy, you may be required to pay an additional premium when renewing your policy.
- Can I reduce the distance travelled slab level during the policy period?
Throughout the duration of your insurance policy, it's typically not allowed to reduce your distance travelled slab. However, you do have the option to increase the distance slab if needed. Therefore, when initially purchasing a Pay As You Drive insurance policy, consider starting with a lower distance slab and then adjusting it upward as necessary.
- What is the policy duration of a Pay As You Drive insurance policy?
The duration of the Pay As You Drive (PAYD) insurance policy is not fixed; it depends on the specific slab you choose.
- Can I top up my Pay As You Drive insurance policy if I am about to exhaust my pre-stated kilometre limit?
Certainly, if you find yourself approaching the pre-stated kilometre limit on your Pay As You Drive insurance, you typically have the option to increase that limit.