Pay for insurance based on how much you drive: What is 'Pay-As-You-Drive' and how can it lead to massive savings?

Car Insurance News: If you use your car sparingly or work from home, this lesser-known car insurance method could help you save thousands of rupees. Here is what 'Pay-As-You-Drive' is all about.

Car Insurance: If your car remains parked at home most of the time and you use it only occasionally, there is a new option available for you to save on motor insurance. Known as 'Pay-As-You-Drive' (PAYD) insurance, this scheme determines a portion of the premium based on the distance the car is driven over the course of the year.

Launched in India following approval from the insurance regulator, this scheme requires vehicle owners to select an annual mileage slab when purchasing or renewing their policy. Different insurance companies offer various distance-based options. If the vehicle is driven within the chosen limit, the customer may pay a lower premium compared to standard motor insurance.

Does it affect the third-party insurance premium?

However, this does not affect the third-party insurance premium, as that is determined by the government and the regulator. The savings offered under PAYD apply only to the 'Own Damage' cover of the vehicle.

Insurance is assessed in different ways.

Insurance companies assess vehicle usage in various ways. Some measure distance based on the vehicle's odometer reading, while others track car usage using telematics or mobile technology.

This scheme is considered particularly beneficial for those who do not use their car daily. Employees working from home, retirees, families owning multiple cars, or those who drive only on weekends can achieve significant savings through this option.

Conversely, if you cover long distances daily or use your car regularly, a traditional motor insurance policy might be a better choice for you. With many companies, exceeding the stipulated kilometer limit may require paying an additional premium, or the customer might be moved to a higher-mileage slab.

What do experts say?

Experts advise against choosing a PAYD (Pay-As-You-Drive) plan solely based on a lower premium. Before purchasing the policy, it is crucial to understand how the company measures vehicle usage and what rules apply if the set limit is exceeded. Some companies offer the option to increase the kilometer limit during the policy term, while others charge an additional fee.