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Pay as You Drive Car Insurance: Meaning, Working, and Benefits

Team AckoJul 22, 2021

The car insurance industry keeps evolving to serve its customers. The move from paper-based insurance to a digital platform is a prime example of this evolution. The regulating body as well as the insurers work towards serving potential and existing policyholders’ needs and making their insurance experience satisfactory. The Pay As You Drive Car Insurance Policy is a recent example that is directed towards offering a customised car insurance policy.

Pay As You Drive Insurance

The Pay As You Drive (PAYD) or Pay As You Go model has been explored to a great extent in foreign countries but is new to India. This article will cover various aspects related to this model including its description, working, and benefits with the help of the following sections. A Key Takeaway section and a Frequently Asked Questions section at the article’s end will also help you to understand this new type of car insurance in India. Read ahead for a detailed explanation.

What is Pay As You Drive Insurance?

Pay As You Drive is a type of car insurance model. It allows the policyholders to customise their insurance policies to an extent, thereby helping to reduce the premium. Such policies are already prevalent in developed nations across the world and are gaining momentum in India.

1) Third-party Insurance:

In India, insuring a vehicle is important. It is a legal requirement and you can be penalised for not following the rules. Therefore, you must make sure to have your vehicle covered with at least a Third-party Car Insurance Policy. Such a policy covers injuries to third parties and damages to their property caused by the insured vehicle.

2) Comprehensive Insurance:

A Comprehensive Plan is your second option. It is a wide-ranging motor insurance policy. And it includes the law-required cover. Its advantage is that the policy offers Own Damage cover. This ensures protection against financial losses in case of damages to the insured car. Such damages can be due to calamities, fire, vandalism, etc. Theft is also covered by the policy.

A Pay As You Drive car insurance policy offers the mandatory Third-party Liability Car Insurance Policy for the policy period. It also offers Comprehensive Coverage but is based on the distance travelled by the vehicle.

As a result, you pay the premium for the distance that you drive. However, the premium for the mandatory policy shall not be affected by the distance. Thus, if you drive less, you pay less for overall car insurance.


As mentioned above, the PAYD model is relatively new in the Indian market. The Insurance Regulatory and Development Authority of India (IRDAI) had issued a Press Release on 14 January 2020. It approved proposals from insurers and intermediaries under the Regulatory Sandbox. One of the proposals was regarding PAYD or usage-based motor insurance. As a result, some of the car insurance companies in India are offering the PAYD car insurance policy.

How Does Pay As You Drive Car Insurance Policy Work?

Here are some points highlighting the working of the PAYD policy.

1) Buying the Policy:

All car insurers and intermediaries in India are not offering this policy as of now. If you want to purchase such a plan, you will have to get in touch with the insurer or conduct basic online research for those who offer such a plan. You need to go through the details of the policy and if you find it beneficial, you can purchase it via the available means: online or offline.

You will have to submit the following information and documents while purchasing the policy:

  • Current odometer reading and other car details.

  • Online/offline consent form.

  • Know Your Customer (KYC) details.

  • Any other document as required by the insurer.

2) Declaring the Kilometres:

The PAYD policy’s premium depends upon the number of kilometres the insured car is driven. Currently, the cost of a Comprehensive Car Insurance Policy for a car that has covered 50,000 kilometres will be the same if it had just covered 10,000 kilometres. This is because the usage does not matter. However, that is not the case in a PAYD policy. Here, the usage does matter.

While purchasing the plan, you will have to choose a ‘distance to be travelled’ slab. In simple words, you make an informed decision regarding how much distance you will travel in the insured car and pay the corresponding premium. Usually, the slabs are as follows:

  • Below 3000 km

  • More than 3000 km but less than 5000 km

  • More than 5000 km

The crucial point here is to choose a slab closer to the lower limit rather than the upper limit. For example, if you feel your car will cover around 3500 km during the policy period, then going for the below 3000 km slab is better than going for the one above it. It will save you money. And if you find yourself in a position where you are going to cross the km limit, you can top-up the km. However, do check the top-up terms and conditions before making a final decision.

3) Installing the Telematics Device:

You might be asked to install a Telematics Device in your car by the insurer. Such a device helps to track the distance travelled and offers several other analytical features. Usually, there’s a Telematics App that is installed in the policyholder’s phone as well. It presents all the relevant driving-related information. The insurer can also use the app to communicate with the policyholder regarding exhaustion of the chosen kilometre slab and send subsequent top-op or renewal notifications.

A Telematics Device assumes more responsibility in the case of a Pay How You Drive model. Here, the emphasis is not on the distance travelled by the insured car but on the way it is driven. Braking technique, average speed, etc. are noted and the premium is charged based on the risk profile derived by analysing the collected data.

Features and Benefits of the Pay As You Drive Car Insurance Policy:

Here’s a table highlighting the key features and benefits associated with the PAYD model.

Features Benefits
Customisation You can customise the insurance policy based on the vehicle’s usage in terms of the estimated distance to be covered by the car.
Flexibility If you feel you are about to cross the declared distance travelled, you can top it up with the suitable km range and ensure continuous insurance coverage.
Low Premium If you use the car to travel less, you will pay a lower premium as compared to a generic Comprehensive Car Insurance Policy where the premium is not dependent on the car’s usage or distance travelled.
Telematics Device Your car insurer might ask you to instal a Telematics Device in your car and download the relevant app. This can be beneficial for you as it will provide you with actionable insights regarding your driving and car insurance specifications.

How to Buy A Pay As You Drive Car Insurance Policy?

Here’s how you can purchase Pay As You Drive Car Insurance Policy online. This is a generic process, the exact step-wise policy mechanism might differ from one car insurance company to another.

Step 1: Check which insurer is offering such a plan by browsing their website.

Step 2: Read the features, benefits, inclusions, and exclusions of the policy.

Step 3: Enter personal and car details in the relevant purchase section of the website.

Step 4: Declare information and documents as per the insurer’s demands.

Step 5: Select a car insurance package along with suitable add-ons, if needed.

Step 6: Make the payment.

Step 7: Download the car insurance policy or receive it in your registered email ID’s inbox.

Note that the details regarding the installation of the Telematics Device and the App (if any) will be shared by the insurer.

Frequently Asked Questions:

This section covers basic queries regarding PAYD.

What is the difference between PAYD, Usage-based and PHYD insurance?

PAYD and Usage-based insurance are different names for the same concept where you pay an insurance premium based on the distance covered. Pay How You Drive or PHYD is a plan where the premium is charged based on how the vehicle is driven.

What kind of documentation will I need to buy PAYD car insurance?

The exact documents will depend upon your insurer’s requirements. Usually, the consent form, odometer reading, and KYC details are required to buy the policy.

What happens if I cross the Distance Covered Slab and do not inform the insurance company about it?

Your coverage will expire if you cross the chosen Distance Threshold and do not opt for a top-up by contacting the insurance company.

Can I reduce the Distance Travelled Slab Level during the policy period?

Usually, choosing a lower slab level is not allowed during the policy period. However, you can increase it. Thus, it is suggested to choose a lower level and then top it up as and when required.

What is the policy duration of a PAYD plan?

The Third-party Liability Car Insurance coverage will last for a year. The Comprehensive Cover will depend upon the chosen Distance Travelled Slab. Once you cross the threshold, the policy will expire, unless you top it up.


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