Drive less, pay less: Why 'Pay as You Drive' insurance may be right for you

Do you take your car out just once a week for a short drive? That’s exactly what Mehak from Dehradun does. Living in a smaller city where everything is close by, she hardly needs to use her car. On the other hand, Rahul, who lives in Delhi, also owns a car but prefers the metro for his daily commute to avoid the city's notorious traffic. He only takes his car out on weekends.

If you’re someone who doesn’t use their car often, like Mehak and Rahul, you might benefit from a Pay As You Drive (PAYD) motor insurance plan. Since less driving means a lower chance of accidents, you could make fewer insurance claims, which is where PAYD insurance can save you money.

What is Pay As You Drive?

Pay As You Drive (PAYD) is a “usage-based” car insurance. This plan allows policyholders to save on their ‘own damage’ insurance costs based on the number of kilometres they drive in a year. In simple terms, if you don’t drive much, you pay less for your insurance. There’s no need to worry about a maximum number of kilometres—you only pay for what you use. Additionally, you might qualify for renewal discounts if you don’t make any claims during the policy year.

How does PAYD insurance work?

PAYD is a comprehensive car insurance plan tailored to how much you drive. You can customise your policy based on how far you expect to drive. And if you find yourself nearing your mileage limit, you can top up your coverage to stay protected.

Nitin Kumar, Head of Motor Insurance at Policybazaar.com, explains, “It is a cost-effective solution, particularly for infrequent vehicle users like urban dwellers reliant on public transportation or families with multiple cars. Various insurers adopt different PAYD policy models. Some plans enable setting an annual driving limit with corresponding premium slabs, while others allow users to ‘switch off’ their policy on non-driving days, earning bonus days for every switched-off day.”

What are the benefits of PAYD insurance?

"This approach benefits a wide range of people from different backgrounds. For instance, those working from home or in hybrid roles often drive less, as daily commutes are reduced. Similarly, households with multiple vehicles tend to use their second car only on special occasions, leading to lower annual mileage. People living in tier-2 or tier-3 cities often drive shorter distances within their local area, which also cuts down on yearly usage. Additionally, senior citizens usually drive less after retirement," says Mayur Kacholiya, Head of Motor Product at Go Digit General Insurance.

"Pay-As-You-Drive insurance can offer up to a 25% discount on your own damage premium based on the kilometres you drive annually. This tailored pricing model makes PAYD more affordable than traditional car insurance policies. Unlike standard coverage, PAYD charges you based on your actual mileage, offering flexibility that adapts to your changing driving needs," Kacholiya adds.

Some of the benefits are:

Lower premiums: PAYD policies offer lower premiums for drivers who drive less, aligning insurance costs with actual usage and risk.

Incentives for safe driving: PAYD can encourage safer driving habits. Some policies might even reward you with lower renewal prices if you drive less.

Better cost control: With PAYD, you have more control over your insurance costs. Some policies use smart technology to track your driving habits and adjust premiums accordingly.

How can you avail PAYD insurance?

ICICI Lombard's website explains the steps to get started with PAYD insurance:

Choose an insurer: Several companies in India, like Bharti AXA, Bajaj Allianz, and ICICI Lombard, offer PAYD policies. Compare the terms and conditions to find one that suits your needs.

Install a telematics device: After selecting an insurer, a telematics device is installed in your car to track the number of kilometres driven. This data is then shared with your insurer.

Pay premium based on usage: Your premium is calculated based on the kilometres you drive, usually in specific slabs. For instance, driving less than 5,000 km annually might place you in a lower premium bracket. Insurers often offer different kilometre limits, such as 5,000 km, 10,000 km, or 15,000 km.

Monitor your usage: Many insurers provide a mobile app or online portal to help you monitor your driving habits and insurance costs, allowing you to manage both effectively.

Renew or adjust your policy: When your policy term ends, you can renew your insurance based on your driving data. If you’ve driven more than expected, your insurer might offer an option to adjust your coverage to include additional kilometres.

What are the plans available:

Here are some "Pay as You Drive" insurance plans available in India:

1. ICICI Lombard Pay As You Use (PAYU) Insurance

   Coverage: Offers comprehensive insurance with an option to choose coverage based on kilometres driven.

   Customisation: Policyholders can opt for different kilometre slabs (e.g., 2,500 km, 5,000 km, 7,500 km).

   Premium: Lower premium rates compared to traditional policies if you drive less.

   Additional features: Allows upgrading to higher kilometre slabs if needed during the policy period.

2. Bajaj Allianz DriveSmart Insurance

   Coverage: Includes both comprehensive and third-party liability insurance.

   Technology: Utilises a telematics device to track driving behaviour and distance covered.

   Discounts: Rewards safe driving and lesser kilometres with premium discounts at renewal.

   Customisation: Flexibility in choosing the driving range (km-based) as per your annual usage.

3. ACKO Pay As You Drive Insurance

   Coverage: Comprehensive coverage with the benefit of paying as per the usage.

   No Claim Bonus (NCB): Standard NCB benefits apply; lower premiums due to lesser driving.

   Digital Platform: Entire process from purchase to claims is handled online.

   Flexible Plans: Options to select from different driving slabs with the possibility to adjust during the policy period.

4. Go Digit Pay-As-You-Drive Plan

   Coverage: Comprehensive motor insurance with customisable kilometre slabs.

   Premium Savings: Reduced premiums based on lower vehicle usage. 

   Renewal: Flexibility to adjust driving slab at renewal based on previous usage.

The PAYD discount is offered based on the vehicle's odometer reading and age, with an annual mileage under 12,000 km. This approach benefits customers by eliminating the need to track their odometer or top-up kilometres during the policy period. Even if they exceed the 12,000 km limit, they remain covered for any accidental damage within the policy year.

5. HDFC ERGO Pay As You Drive Plan

   Coverage: Comprehensive cover with kilometre-based premium adjustments.

   Tracking: Involves usage of telematics for tracking kilometres and driving behaviour.

   Discounts: Potential discounts for driving within selected kilometre limits.

   Customisation: Option to select kilometre slabs and adjust as needed.

Note:

The premiums for "Pay as You Drive" insurance plans vary based on several factors, including the insurer, vehicle type, selected kilometre slab, and driving behaviour.

How popular is PAYD insurance?

A recent report by PolicyBazaar reveals that over one in three buyers choose PAYD plans, and three in four renew them, reflecting a growing trend towards personalised motor insurance.

What are the popular distance slabs?

Here’s how buyers typically choose their distance slabs:

5,000 km: Chosen by 30% of buyers

7,500 km: Chosen by 25% of buyers

10,000 km: Chosen by 25% of buyers

2,500 km: Chosen by 20% of buyers

Interestingly, 20% of these buyers opt for top-ups, showing the flexibility of PAYD plans.

Where Is PAYD most popular?

Interest in PAYD is highest in the South (55%) and lowest in the North (36%). The top cities for PAYD plans include:

Delhi: 8%

Bangalore: 5%

Mumbai: 3%

Pune: 2%

Gurgaon: 2%

Who is adopting PAYD insurance?

PAYD plans are most popular in metropolitan areas, which account for a significant percentage of insured vehicles:

Metros: 40%

Tier-2 Cities: 36%

Tier-3 Cities: 24%

There’s also been a 13% increase in online adoption of PAYD insurance among residents of tier-2 and tier-3 cities.