Pay As You Drive Insurance: Meaning And Benefits
Insurance companies are leaving no stones unturned in renovating their products and bringing a new wave of tech-based transformation as per the evolving requirements of users. The car owners have the option of choosing their own insurance plan based on their car’s usage. In fact, if you drive occasionally, and drive well when you do, then you can save money big time on car insurance premiums.
What Do You Mean By Pay As You Drive Insurance (PAYD)?
PAYD is a kind of non-conventional and new-age affordable car insurance, where the premium is comparatively low as it is paid on the basis of how many kilometers the insured has driven his/her car. This means, the insured pays the premium for the distance he has driven their car.
As in India, having car insurance is mandatory, but it is quite a waste of money when you have to pay full premiums on less used cars or if you only drive occasionally. Thus Pay As You Drive or PAYD comes into the picture, which is an ideal choice for those who do not drive very regularly.
For instance, any car insured who drives less than an average up to 2,500 kilometers in a policy year, gets a whopping 25% discount on premium, calculated on the basis of annual kilometer slab and odometer reading.
How PAYD Works in Car Insurance?
The working of this tech-based PAYD is quite different from regular and standard car insurance policy as it ensures more practical pricing for car insurance policies. While buying the OD policy, the policyholder is required to declare the usage of car usage based on the usage slab provided by the insurer. Based on the car’s usage and kilometers covered by the car in the policy period, the insurance company provides a discount on the OD premium amount which maximum goes up to 25%.
The PAYD plans usually have different slabs such as 2,000 kms per year, 5,000 kms per year, 7500 kms per year, 10,000 kms per year and so on. In this kind of cover, the premium is calculated based on the total distance driven during a policy year. There are slabs of distance which you can choose as per your usage.
Discounts Available under PAYD
| Car Usage Slabs (Mileage) | Discount on OD Premium |
|---|---|
| 0-2,500 kms | 25% |
| 2501-5,000 kms | 17.5% |
| 5001-7500 kms | 10% |
| 7,501-10,000 kms | 5% |
| More than 10,000 kms | 0% |
To gauge and check on the usage of the kilometers driven, the insurance companies install a tracking device based on smart technology such as:
- Telematics device
- On-board diagnostic sensors
- Self-install device such as a pen drive
- Advanced or hi-tech GPS device
- Or, with the help of a mobile app.
Along with the car’s usage and mileage, these tech-fitted devices help a lot in accurately measuring the other dimensions of car driving such as acceleration, braking, speed, location you drive, how often, and for how long. Your whole driving pattern is linked either to an app on your mobile phone or on some sort of device. There are several rewards also which many insurance providers offer to promote safe driving.
However, if your declared car usage limit gets exhausted, then you have an option to enhance or top-up the kilometers usage or shift to regular OD car insurance policy.
Insurance companies such as HDFC ERGO, ACKO, Digit, Reliance General and ICICI Lombard, provide PAYD car insurance policies.
PAYD also allows another version where the policy follows switch on and switch off motor insurance. So, you can turn on your own-damage cover while you are driving and switch it off whenever you are not using your car.
One more variation of the usage-based policy is “switch” insurance policy where you can switch on your own-damage cover when you are driving and switch it off when you are not. This simply works on the principle of the direct usage of cars on an everyday basis where switching on and off can be done via a mobile app. At present, there are few insurance players such as Kotak General and Zuno General which are having these kinds of policies. The best part is that the companies give extra reward if the car is switched off for a whole day.
Moreover, the policyholders of such policy can earn up to 40% cash back for unused days of the car and can also request a discount on renewal premiums. The insurance companies gauge the switch on/off mode via a mobile app, which has to be downloaded by the insured at the time of purchasing the policy.
What are the Key Features of PAYD?
- Tenure of the PAYD policy is generally one year.
- Premium is entirely dependent on the usage slab of the kilometers covered.
- Avail the maximum discount of up to 25% on their own damage insurance premium.
- Flexibility to enhance the car insurance cover by opting for add-on covers.
- Provides coverage for own damages and third-party liabilities.
Who Should Opt for PAYD Insurance?
It is obvious by now that PAYD is a smart way of saving yourself from hefty premiums which have been charged on car insurance. By PAYD, you are actually paying till your driving limit which generally suits best, if you:
- Do not drive that often but still shell out the same premium as a driver with heavy usage.
- Are aged or a senior citizen and drive less often.
- Are a college student and still clearing your hands-on driving.
- Have multiple cars at home and use one car more than the other.
- Rent a car and require insurance for a short period.
- Live in remote areas or work from home and drive very less.
- Reside in a small city where car usage is generally less than 10,000 kms per year.
How Does PAYD Insurance Benefit You?
PAYD is a better option than a regular or standard car insurance policy totally depends upon the individual’s car usage, where they live and how many cars they drive. So if you are a college student, who really doesn’t indulge much in driving, then PAYD is an affordable option for you. Similarly, if you drive occasionally, then also PAYD is ideal for you.
It also depends if you live in remote or less crowded areas, then PAYD will benefit you as it charges less for less mileage driven on emptier roads rather than the crowded spaces. Let’s see the benefits of PAYD:
- Promotes better driving habits on roads as the data recorded in the devices helps you to adopt safety measures while driving.
- Offers a discount of up to 25% on own damage premium as per the kilometers driven during the policy year. Thus, PAYD is a cheaper option as compared to regular car insurance policies.
- There are no charges for the installation of telematics or any such devices.
- The telematic device installed, works as an anti-theft device as it comes along with a GPS tracking mode.
- Insurance companies don’t charge extra even if they drive for more kilometers than declared. You can easily top up or enhance the limit at no charges.
- Companies provide additional discounts of up to 5% in case of a claim-free year which encourages responsible driving.
- PAYD coverage is quite flexible as it allows you to cover your car based on your usage.
How to Buy PAYD Car Insurance?
PAYD is a new offering in the insurance market, which a lot of general insurance companies have started offering to woo their consumers. You can buy this as an add-on cover very easily by visiting the official website of the insurance company. As soon as you log in and buy PAYD cover, the insurance company might ask you for personal and car details.
After this step, the insurance company will install or fit the smart technology devices in your car at no extra cost, which will track the total distance covered by your car. Declare the car usage and all the other pertinent information to your insurance provider and select a car insurance policy accordingly. Make the payment online and download the car insurance policy along with PAYD cover, which is received in your inbox.
What is Covered and Not Covered in PAYD insurance?
Covered:
- Damage to the car due to an accident or collision.
- Damage to the car due to theft or vandalism.
- Damage due to man-made or natural disasters.
- Damage due to fire or explosion.
- Third-party liabilities.
Not Covered:
- Driving without a valid license.
- Driving under the influence of drugs or any other toxic substances.
- General or regular depreciation.
- Damage due to electrical or mechanical issues.
What are the Different Types of Add-Ons Available with PAYD Car Insurance?
PAYD is offered on the basis of car usage, so the plan is very much similar to a comprehensive insurance policy which includes the main two components such as third-party premium and own damage (OD) cover.
PAYD Cover = Third-party Liabilities Own Damage Premium + Add-Ons (if any).
It is to be noted that though it is offered as a comprehensive cover, it is considered to be quite a cheaper option as compared to regular and traditional comprehensive insurance policies. However, it allows full flexibility of adding add-on riders such as zero depreciation, engine protection, emergency roadside assistance, no claim bonus protection, and return to invoice cover, and so on.
Popular Insurance Providers of PAYD Coverage
- New India Assurance
- HDFC ERGO General Insurance
- Digit General Insurance
- ACKO General Insurance
- ICICI Lombard
- TATA AIG General Insurance
- Kotak General Insurance
- Zuno General Insurance
- Reliance General Insurance
Bottom Line
In India, the PAYD model is quickly picking up as more and more insurance providers are accepting “Pay As You Drive” as a perfect alternative to a regular and standard car insurance policy. As technology is evolving in the insurance space, PAYD can prove to be a win-win deal for both insurance providers and insurance takers.
However, it is to be noted that if you drive regularly, then comprehensive insurance is the best choice, but if you do not drive that often then you can surely invest in a usage-based insurance model as it helps you from paying a regular car insurance premium which comes at high cost.
As it is with all kinds of insurance, it is worth doing a comparison between the types of coverage available before making an ultimate and prudent decision.
Frequently Asked Questions (FAQs)
Is PAYD different from PHYD? Yes. Both Pay As You Drive (PAYD) and Pay How You Drive (PHYD) come under the new-age concept of usage-based car insurance. In PAYD, the insurance car premium is based on how many kilometers you have driven, but in PHYD, a plan premium is calculated on the basis of how one is driving their vehicle.
Can I opt for PAYD if I drive on a regular basis? No. PAYD is only beneficial when you are driving less and still paying a hefty premium amount. However, if you are a regular driver, then you must opt for a proper comprehensive car insurance policy.
How can I save premium via PAYD in car insurance? If you drive not that often or have low mileage, then you can save big on the premium charged on car insurance policy. As in PAYD, the premium paid is calculated based on the number of kilometers driven by the driver. Under PAYD, the policyholder can also avail of a discount of up to 25% on their own-damage insurance premium.
Is the claim settlement process different in the PAYD based insurance? No. There is no difference in the way insurance companies settle the claim for the “Pay As You Drive” coverage. It is similar to any other car insurance policy.
