How ‘Pay As You Drive’ Insurance Helps Low-Mileage Drivers Cut Premium Costs

Pay As You Drive (PAYD) is an innovative add-on cover for car insurance that revolutionises the way you pay for your own damage (OD) motor vehicle policy. It allows you to pay a premium based on your actual car usage, rather than a fixed annual premium rate, thereby ensuring you only pay for the coverage you actually use. If you drive daily, this probably isn’t for you. However, if your car spends less time on the road, this add-on offers a smart way to get significant savings on your car insurance premiums.

Says Aditya Kumar, head of motor underwriting at Go Digit General Insurance: “PAYD add-on cover is particularly beneficial for individuals who drive their cars infrequently. This includes residents of major cities who often rely on public transportation systems like metros and trains for their daily commutes, corporate individuals who have hybrid work mode, or households with multiple vehicles who tend to use their secondary cars less frequently. It is also ideal for people living in tier-2 and tier-3 cities who drive shorter distances, and senior citizens who experience a decline in vehicle usage after retirement.”

Essentially, PAYD add-on can be bought by anyone who doesn’t drive their cars excessively. However, it’s important to keep in mind that PAYD offered may vary from insurers to insurers. Typically, there are two different ways the PAYD plan is offered.

Based On Historical Usage 

In this case, a discount on the OD premium is provided on the basis of eligible kilometres. Let’s say the vehicle is historically driven for less than 12,000 km per annum at the inception of the policy. This ensures a hassle-free experience throughout the policy tenure and no top-up is required. Your claim does not get rejected even if you cross the eligible kilometres.

Based On Chosen Slabs

In this case, you can anticipate how many kilometres you would be driving annually in the upcoming year and opt for a specified kilometre slab and pay premiums accordingly.

“If you exceed your limit, you can purchase a top-up to extend your coverage by paying an additional premium,” says Kumar.

This can typically be done by informing your insurer and creating a policy endorsement for the extra kilometres. However, do ensure that you obtain the top-up before or immediately after crossing your limit, as your claim may get rejected if you have exhausted the slab opted by you.

How it Works and the Cost Comparison

To avail of this benefit, simply add the PAYD add-on to your comprehensive policy. Qualifying for the policy is typically simple: you just need to share an image of your odometer reading along with an online vehicle inspection. If you choose a lower kilometre slab, you can significantly reduce your car insurance premium.

“Instead of paying the full premium, you may end up paying only a fraction of the original cost. While traditional insurance focuses on factors like car type, age, and location, PAYD focuses on your driving habits, allowing you to save up to 25 per cent or more on your own damage premium,” says Kumar.

PAYD add-on allows your premiums to vary based on actual use of your car. Customers can select and build their own insurance package to fit their needs. When getting a motor policy, if you are someone who typically drives less or can anticipate your annual driving mileage, look at opting for a PAYD add-on cover under your OD policy. Simply calculate your average annual mileage and benchmark it against your current flat premium before your next renewal to see how much you can save.

FAQs

1. What does PAYD insurance stand for?

Pay-As-You-Drive (PAYD) insurance is an add-on for your car insurance policy that allows you to pay premiums as per the distance you drive, so low-mileage drivers can avail lower insurance rates.

2. Who should buy PAYD insurance?

PAYD insurance riders are ideal for individuals who drive occasionally such as hybrid employees, senior citizens, owners of multiple cars per family, individuals using public transport for daily commute, etc.

3. Can I buy additional kms on PAYD insurance if I exceed the mileage of my chosen plan?

As per certain insurers’ policies, you need to buy a top-up for additional kms driven. If you do not buy a top-up after exceeding your selected km limit, you may not be eligible for claims.