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Pay as You Drive – New Car Insurance Scheme that Easily Impresses

Published on July 13, 2020 EST READ TIME: 5 MIN

It is a well-known fact that if you own a car, you will have to take care of it. However, people who do not use their car often usually consider insurance to be a burden. The good news is that, the new insurance scheme provides an answer to this problem. Pay as You Drive is a usage-based car insurance policy that charges premium based on the mileage of the car. For all those who don’t use their car much, this type of policy offers a way to reduce costs.

What is Pay as You Drive Insurance?

The Pay as You Drive insurance policy offers a fair deal to all those who don’t use their car much. It is a type of car insurance where the premium is based on the usage. It is one of the innovative policies that have been sanctioned this year by the IRDAI. It is a comprehensive own damage plus third party policy where OD premium is based on the distance travelled by the car, wherein the third party premium is fixed by the IRDAI. The users can choose a slab based on their expected usage, and the premium is decided accordingly. This is way cheaper than the regular car insurance policy.

How Does Pay as You Drive Work?

This car insurance policy requires you to declare the kilometres that you expect your car to cover over the policy tenure of next one year.

  • The users can choose from slabs provided from say 2000 km, 5000 km or 7500 km.
  • These slabs are not fixed and vary from provider to provider, with every insurance company offering their own slabs to policyholders.
  • A telematics device is installed in the car without any extra cost to monitor the distance covered based on the slab chosen and alert the driver about the balance.
  • Apart from monitoring the distance, it also monitors the condition of the car and driving habits of the driver.
  • Once the limit is reached, the device alerts the policyholder. He can then choose to upgrade to the next slab or wait until the end of the tenure to renew the policy.

Features of Pay as you Drive Insurance

Some of the notable features of the policy include:

  • It is a part of the sandbox project of IRDAI.
  • The policy is valid for a period one 1 year.
  • The premium is more affordable as compared to regular car insurance policies.
  • The premium is a summation of third party premium fixed by the IRDAI and own damage premium calculated based on the distance covered by the car.

Benefits of Choosing Pay as You Drive Insurance

The Pay as You Drive policy is particularly beneficial for those who don’t use their car much. The many benefits it offers include:

Fair Deal – Consider an example. A person X drives his car for approximately 50,000 km in a year, while another car owner Y is hardly in town and therefore his car barely covers a distance of 5000 km in one year. They both have a car insurance policy and pay a premium of Rs 6000 per year. Now, the person X is alright with paying that amount because he drives his car a lot, and therefore, need protection should he meet with an accident. On the other hand, the person Y finds the insurance premium to be a burden because he is paying more towards the premium than he is driving the car. So, this insurance policy is a burden for him. The person Y would benefit from the Pay as You Drive policy because his premium payment will depend on how much he uses the car. It will be more affordable for him as he can choose the lowest slab.

Lower Premium – The slabs are low, and so, the premium amount is also low, and way cheaper than regular car insurance premium.

Free Telematics Device – The policyholder gets a free telematics device installed in the car. This device not just monitors the kilometres, but also the condition of the car and the driving habits of the driver.

Customizable –The policyholder can customize the cover as per his requirements by choosing add-ons. They can either upgrade to a higher slab or switch to their regular slab as per their need, anytime.

The Pay as You Drive insurance is still in a nascent stage and not all insurance providers have been given the go-ahead by IRDAI to offer it as a part of their regular offerings. It is being offered as a pilot project by a few chosen insurance providers. While still in its infancy, the Pay as You Drive insurance premium is indeed beneficial, especially for those who do not drive long distances or frequently.


Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

This blog has been written by

S. Gopalakrishnan | Motor Insurance Expert | 40+ years of experience in insurance industry

A veteran in insurance industry. S. Gopalakrishnan is a name to reckon with in the field of reinsurance, he has headed the Reinsurance department and has rich experience in other fields of motor insurance. He loves to share his opinion on latest topics in the insurance industry and how he can help people in safeguarding their assets using insurance products.

Mr.S. Gopalakrishnan recommends"HDFC ERGO for your vehicle insurance needs, it has always put customer’s interest at the forefront, with round the clock assistance to deal with emergency breakdown issues and hassle free claims process. You can be assured of complete and reliable guidance through the whole process."

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