The ‘Pay As You Drive’ insurance product is a comprehensive own damage (OD) plus third party (TP) policy where the third party premium will be decided as per the norms while the comprehensive own damage premium will be calculated based on how many kilometers you plan to drive in a given timeframe. Insurance companies generally offer it as an add-on cover.
There are two basic types of ‘Pay As You Drive’ policies — one is based on the kilometers driven and the other is the number of days the insurance policy is on, explained Ashwini Dubey, Head – Motor Insurance Renewals, Policybazaar.com. The kilometer-based plans generally start from 2,500 kilometers per year and have different slabs of 5,000 kilometers, 7,500 kilometers, 10,000 kilometers, and so on, he added. To gauge usage, insurance companies generally install a tracking device in your car or use a mobile application.
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For example, under HDFC ERGO’s ‘Pay As You Drive’ – Kilometer Benefit Add-On cover, if you are driving less than 10,000 kilometers a year, you can claim a benefit of up to 25 per cent of the basic own-damage premium at the end of the policy year. The discount will vary depending on the kilometers you drive. In case you continue to renew the policy with the insurer, you get an additional discount of 5 per cent on the basic own damage premium if there is no claim in your previous policy.
What happens if you exceed the kilometer limit? Typically, the third-party cover will remain active but there will be no own-damage cover in case of a claim. Generally, insurers give you the option to top up your coverage with more kilometers if you exhaust the previously chosen mileage plan for that year. Another variation of the ‘Pay As You Drive’ policy is Switch On/Off motor insurance where you can turn your own-damage cover on while you are driving and switch it off when you are not using your car. Kotak Meter (Switch On/Off) allows you to turn off your own-damage cover when you are not driving. For every continuous 24-hour period where your own-damage cover is off, you will get one bonus day as a reward.Also Read: New switch on and off motor insurance add-on offers cashback: Will you get in case of claim?
Among others, ICICI Lombard, Zuno General Insurance (previously known as Edelweiss General Insurance), Acko General Insurance, Digit General Insurance, and New India Assurance also offer ‘Pay As You Drive’ motor insurance policies.
Pay As You Drive: Up to 20% savings on OD premiums
‘Pay As You Drive’ covers are based on a simple principle that you should pay less premium for insurance if you drive less. If you are sure about lower vehicle usage during the year then instead of a flat rate, you can pay the insurance premium as per your actual usage. “The premiums for ‘Pay As You Drive’ is lower than a general car insurance, but it depends on insurers,” said Ashish Lath, Business Head, InsuranceDekho.
The premium of ‘Pay As You Drive’ insurance will depend upon various other factors. “The premium of ‘Pay as you Drive’ insurance depends on several factors, such as the type of car you have, the age of the car, and the level of coverage needed,” said Pooja Yadav, Chief Product Officer, of Zuno General Insurance.
Now how much will you save if you opt for a ‘Pay as you Drive’ policy? Answering this, Ashish Lath said, “The higher the slab you choose, the higher the premium and vice versa, People opting for Pay As You Drive insurance can save 5-20 per cent over a general car insurance plan.”
“The exact amount of savings depends on your car’s model, age, and place of registration. For a five-year-old Maruti Swift, you can save up to 20 per cent on its own-damage premium,” Dubey explained.
Echoing the same, Animesh Das, Senior Director – Motor Underwriting at ACKO said, “A car owner can save up to 20 per cent of the insurance premium by opting for such plans.” Do note that the exact amount of savings will depend upon various factors.
“‘Pay As You Drive’ is an add-on offered under a regular motor insurance policy hence, all coverages and benefits under the motor policy are also available. Those who have limited use of their cars can have significant savings on their annual premium by opting for ‘Pay As You Drive’,” said Yadav.
Who should buy ‘Pay As You Drive’ insurance?
‘Pay As You Drive’ motor insurance policies are most suitable for those who drive less, said Bahroze Kamdin, Partner, Deloitte India.
a)Those who work remotely or from home, do not drive their cars regularly. They can use ‘Pay As You Drive’ motor insurance to save some premiums.
b)’Pay As You Drive’ insurance is customised for people who mostly use company-provided transportation, or public transport for the work commute and rarely drive their cars.
c)Senior citizens or retirees who use cars for limited occassions can also opt for ‘Pay As You Drive’ insurance.
d)’Pay As You Drive’ is tailor-made for those who drive their cars only on rare occassions such as homemakers.
e)Those who have multiple vehicles and use one car regularly and the other cars sparingly can go for ‘Pay As You Drive’ insurance for those cars which are used rarely.
f)Those who live in a tier-III city and beyond, and their car usage is usually less than 10,000 kilometers per year, then the Pay As You Drive cover is the right plan for them, said Ashish Lath.
g)Lastly, anyone who drives less than 35 miles per day can opt for ‘Pay As You Drive’ insurance, as per ICICI Lombard.
“While purchasing a Pay As You Drive insurance policy for your car, you need to keep a check on factors such as the type of car you drive, the km you would be covered in a year, the previous year’s claim status, etc.,” said Lath.
‘Pay As You Drive’ insurance premium: Old cars vs new cars
The premium of ‘Pay As You Drive’ usually varies for old and new cars primarily because the risk factors are different. The IDV is also lower for older cars ages and higher for newer cars. Since older cars tend to be driven less on average than newer cars, the premium tends to be lower for older cars, said Dubey.
Should you add add-ons to the ‘Pay As You Drive’ policy?
You can add add-ons to your ‘Pay As You Drive’ policy. “Most insurers offer add-ons in ‘Pay as You Go’ products. While the core of the insurance policy is to cover the damages, it will be covered with the ‘Pay as You Go’ product. Although different companies may have some conditions like the number of claim limits, deductible, etc. it is best recommended to get add-ons to fully protect the vehicle, said Animesh Das, Senior Director – of Motor Underwriting at ACKO.