PAYD suits infrequent drivers who can estimate annual mileage.
How PAYD Works
PB Fintech's (Policybazaar) annual report says premiums on usage-based motor insurance plans on its platform have risen sevenfold since financial year 2022-23 (FY23), led by pay-as-you-drive (PAYD) covers.
Customers considering these policies should assess whether they suit their needs before purchasing them.
Under PAYD, vehicle usage determines the premium.
"While purchasing the policy, the customer generally selects a kilometre limit and declares the existing odometer reading," says Paras Pasricha, head of motor insurance, Policybazaar.com.
"PAYD works like a prepaid phone plan with a data cap, with premiums devised for annual slabs such as 5,000 km or 10,000 km," says Pradeep Funde, senior vice president, Anand Rathi Insurance Brokers.
PAYD discounts apply only to the own-damage (OD) section.
Mandatory third-party cover remains unchanged.
"Insurers may use telematics or connected-device technology to record the kilometres driven. Alternatively, their mobile application may track vehicle usage," says Sameer Samdani, director, Insurance Brokers Association of India.
Plans may offer the discount upfront and sell extra kilometres once customers exhaust the limit, or adjust the renewal premium according to actual usage.
Regular comprehensive policies' premiums, according to Samdani, depend on the vehicle, insured declared value, location, customer profile and selected add-ons.
"They charge a fixed premium for the policy period irrespective of distance driven," says Pasricha.
- You can post your insurance related questions HERE
Key Points
- PAYD premiums depend on annual kilometres driven.
- Discounts apply only to own-damage cover.
- Low-mileage drivers can save significantly.
- Exceeding the chosen slab can reduce savings.
- Compare kilometre limits and top-up rules before buying.
Savings Depend on Usage
In PAYD, savings depend primarily on the kilometre slab chosen.
"Discounts may reach about 80 per cent in certain cases for the lowest kilometre band, or fall to 10-15 per cent for higher kilometre bands," says Funde.
A Few Downsides
The discount applies only to the OD premium, so total savings may be lower than advertised.
OD cover may expire when the selected slab is breached unless the customer buys more cover or the plan converts at a higher cost.
"Customers must continuously monitor the odometer or app-based telemetry to avoid losing own-damage cover during the policy year," says Chetan Vasudeva, senior vice president, Alliance Insurance.
Higher usage can eliminate savings through penalties and top-ups.
"Active monitoring through the odometer or telematics devices can create tracking and privacy concerns for policyholders," says Abhishek Kumar, Sebi-registered investment adviser and founder, SahajMoney.com.
Who Should Consider It?
PAYD suits infrequent drivers who can estimate annual mileage.
Public-transport commuters, remote or hybrid workers, multi-vehicle households, people with short or no daily commutes, weekend drivers, retirees and residents of smaller towns may benefit.
"Drivers with high or unpredictable annual mileage, typically above 10,000-12,000 km, should avoid or use PAYD cautiously," says Vasudeva.
A regular policy may suit buyers who want fixed-cost cover without having to track mileage or buy top-ups.
"Mid-term top-ups or penalty deductibles can quickly wipe out the initial savings for customers whose usage is consistently high or unpredictable," says Abhishek Kumar.
Choose the Right Slab
Estimate annual mileage by dividing the current odometer reading by the vehicle's age or by consulting annual maintenance records.
Choose a slab near expected usage but keep a 15-20 per cent buffer.
Select the higher slab when your estimate is close to a limit.
Buying it upfront may cost less than a mid-policy top-up.
Check Terms Before Buying
Compare OD discounts across insurers for the kilometre slab you have chosen.
"Buyers should review kilometre-limit terms, top-up provisions, odometer-verification requirements and the consequences of exceeding declared usage," says Aditya Kumar, head of motor underwriting, Digit Insurance.
Understand the consequences of breaching the limit.
"Establish whether cover continues after the limit is crossed or whether the customer must take any additional action," says Aditya Kumar.
Customers with financed or leased cars should also check whether telematics devices require lender consent.
- You can post your insurance related questions HERE
Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.
Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.
Feature Presentation: Ashish Narsale/Rediff
