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

Team AckoOct 14, 2022

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.

What is covered and not covered in Pay-as-you-drive car Insurance?

Here are the coverage details of the Pay-as-you-drive Insurance.

What’s covered What’s not covered
Damage to the vehicle due to a road accident Damage while driving the car without a valid driving licence
Vehicle theft Damage while driving the vehicle under the influence of alcohol or drugs
Damage incurred due to natural and man-made calamities such as floods, riots, etc. Depreciation of the vehicle due to regular wear and tear
Damage due to a fire or an explosion Damage due to electrical or mechanical failure

Does Pay-as-you-drive Insurance have add-on options?  

Pay-as-you-drive insurance is offered for a fixed kilometre. However, the plan is essentially the same as the Comprehensive Insurance. Hence, it includes the Third-party Liability Plan and the Own Damage (OD) cover components. Here are some of the add-ons in Pay-as-you-drive car insurance, subject to availability.

  • Zero Depreciation:  The vehicle's value depreciates over time due to car parts' regular wear and tear. During claims, you receive only the depreciated value and not the current value of the car part. The Zero Depreciation add-on cover undoes the depreciation factor so that you get the entire value of the replacement car part.

  • Roadside Assistance: Be it a non-performing battery, tyre puncture, low fuel, etc., car breakdowns can stress you out. The Roadside Assistance add-on cover offers roadside emergency assistance, including towing services.

  • Engine Protection: Flooding can cause severe damage to your car, especially the engine. Since the OD policy does not cover damages to the engine, it is better to include the Engine Protection add-on cover to shield you against losses caused due to damage to the engine.

  • No Claim Bonus Protection: NCB is the discount on renewal you receive for not raising claims during the policy period. However, in case of severe damage to your vehicle and you are forced to submit a claim against your policy, the NCB Protection add-on cover shields you from the loss of NCB.

  • Return to Invoice: In case of vehicle theft or total loss, your claim settlement is determined based on the Insured Declared Value (IDV) stated in the policy after considering the depreciation and deductibles. However, with the Return to Invoice add-on cover, you get the car's invoice value in case of a total loss or theft.

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.

Difference between Pay As You Drive (PAYD) and Comprehensive Car Insurance coverage

Here’s a table highlighting the key differences between these two car insurance policies. Note that the content in the following table offers an overview. For details, check out the applicable policy wordings when you buy or renew car insurance online.

Distinguishing factor Pay As You Drive cover Comprehensive cover
Existence This is a relatively new type of car insurance policy in the Indian market. All existing insurance providers might not offer it at this stage. Such a cover has been in existence for a few decades in the Indian insurance market. It is a popular cover and has sustained over a period.
Uniqueness PAYD’s uniqueness is that it is usage-based. You can choose from different distance-based slabs (for example, below 3,000 km, between 3,000 to 5,000, etc.) and pay the premium based on your car’s usage. A Comprehensive Cover’s uniqueness lies in the fact that you can buy an annual cover or a long-term cover (for example, three year-cover) to insure your car against damages for a long time.
Premium The payable car insurance premium is primarily based on the distance covered by the car. The payable premium in this vehicle insurance policy is primarily based on the car’s make and model, age, location, add-ons, and Insured Declared Value (IDV).
Customisation The PAYD cover is highly customisable as it allows you to insure your car based on your usage. Unlike the Comprehensive Policy, here, if you use your car less, you pay less premium. The Comprehensive cover is customisable based on the IDV and add-ons. Usually, you can customise your motor insurance policy by selecting the IDV from a range and picking suitable add-ons. Your premium will vary accordingly.
Duration This cover’s duration is based on your car’s usage in terms of the driven kilometers and the chosen coverage slab. For example, if you have chosen the below 3,000 km slab, your cover will be active till you complete 3,000 km as per the applicable terms and conditions. Whether you use your car or not has no impact on the policy’s duration. For example, if you have chosen a one-year policy, the policy’s duration will be one year irrespective of the car’s usage.
Claims You can raise a claim as per the policy’s terms and conditions till the time you have not crossed the selected kilometer barrier. You can raise a claim as per the policy’s terms and conditions till the time your policy has not expired.
Telematics Your insurer might ask you to install a Telematics device in your vehicle to keep track of the kilometers. Usually, there’s no requirement for a Telematics device in a Comprehensive Car Insurance Policy.

How Car Insurance Premium Varies as per Car Usage

When you buy a new car, you are obligated to get it insured. This is mandatory and a legal compulsion. The premium of the car insurance plan depends on many factors. Some of them include the type of vehicle, the type of policy, the age of the vehicle, etc.

Calculating your Car Insurance Premium

Listed below are the main factors that matter when you calculate car insurance premium:

  • Type of vehicle: You need a different car insurance plan if your vehicle is used for a commercial purpose and a different plan if it is used for a personal purpose. Therefore, the type of vehicle, its make, and model, registration date, etc, plays a vital role when you use a car insurance calculator.

  • Type of policy: Next, we come to the type of policy. As we all know, car insurance is broadly segregated in two categories – third party and comprehensive. If you have a third party plan, your premium will be lower. If however, you opt for a comprehensive plan, you will have to pay a higher premium. You must, therefore, choose the coverage as per your requirements as it will affect your overall motor insurance costs.

  • Make and model: When you calculate car insurance premium, you will be asked about your vehicle’s make and model number. The costlier the model, the higher the premium will be. So a high-end SUV will have a higher insurance premium as compared to a small, hatchback car.

  • Age of the vehicle: IDV, or the insured declared value, is an important component used by a car insurance calculator. As your car ages, it drops in value. This affects the car insurance cover. So an older car with a higher IDV has a lesser car insurance premium.

  • Riders: Riders are add-on covers available with a basic car insurance plan. If you buy riders to get some additional protection, your premium rates will go up. You should, therefore, understand the scope of each rider and choose the ones that will offer the best value to you.

  • NCB: The no claim bonus (NCB) is a discount you earn for not making claims. This discount accumulates every year. If you have a lot of accumulated NCB, you will get a hefty discount on your car insurance premium.

  • Safety devices: Next, we have the all-important safety features. If you have an anti-theft gadget installed in your car, you will notice a difference when using a car insurance premium calculator. Cars that have these gadgets are safer and so the insurer may offer discounts on the premium. This is because there is a lower probability of the vehicle getting stolen and a claim being made thereafter.

  • Fuel type: Did you know that the fuel type of your car affects your insurance premium? Yes, that is correct. A car that runs or diesel or petrol is cheaper to insure, as compared to a car that runs on CNG. Do not forget to enter your fuel type on the car insurance calculator when you look to calculate the premium.

  • Your location: The location is also important here. People who live in rural areas or even in tier 2 or tier 3 cities need to pay a lower premium as compared to people who live in metros. This is due to traffic, pollution, etc. Since this is so important, make sure you enter your location accurately when you use a car insurance premium calculator before buying a plan.

Should I choose Pay As You Drive or Comprehensive Car Insurance coverage?

The PAYD plan can be the right choice for you if you have specific or seasonal requirements when it comes to driving your car. In short, pick this plan if you don’t use your car too often during the year and only use it to avoid public transport during the rainy season. 

The Comprehensive Car Insurance Policy can be the right choice for you if you travel in your car throughout the year. For example, if you travel to work and back home in your car, use the vehicle on weekends, and go on frequent road trips, then you must insure your car with a Comprehensive Car Insurance Policy and suitable add-ons for ideal coverage.

It’s best to understand your driving usage, pattern, and need, and then pick a PAYD policy or a Comprehensive Policy to insure your car.

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.

Is vehicle theft covered in PAYD car insurance?


Generally, vehicle theft is covered under PAYD car insurance. However, it’s best to go through the policy’s features, inclusions, and policy wordings to check if your policy covers vehicle theft or not.

Can I top up my PAYD policy if I am about to exhaust my pre-stated kilometer limit?


Yes, a top-up facility is usually available in a PAYD policy. However, it can vary from one policy to another.

Is it possible to convert my PAYD cover to a Comprehensive Policy after my pre-stated kilometer limit has been exhausted?


Yes, you can shift to a Comprehensive Policy during car insurance renewal. You can visit www.acko.com to check out a free car insurance quote.

When can I claim against my PAYD car insurance policy?


You can claim against your PAYD car insurance policy till the time it is active, which usually means as long as you have not crossed the pre-decided kilometer barrier.

What is the meaning of a Telematics Device?


A Telematics Device is a gadget that helps keep track of a vehicle. Depending upon the model, the device can track and record the car’s travelled distance, speed, driving pattern, etc., which can prove helpful for personalised premium pricing and claim settlement.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet; and is subject to changes. Please go through the applicable policy wordings for updated ACKO-centric content and before making any insurance-related decisions.


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