Do you use your car mainly for weekend trips or short commutes? If your annual mileage is significantly low, then you may need to look for alternatives to a standard motor insurance policy. Many insurers in India offer an innovative option for less-travelled cars, which is called ‘Pay As You Drive’ (PAYD) cover. It is made to align your car insurance premium with your car’s usage.
This blog explores the role of PAYD and associated covers to bring the most valuable options for policyholders who drive their vehicles less.
Low Usage Cars User Profiles
The low usage of cars is connected with distinct driver profiles. Most of the time, low usage of cars results from the following types of vehicle owners:
- Multi-car households: Individuals with multiple cars may use their primary vehicle for daily commutes and the secondary vehicle for trips.
- Work From Home Professionals: People who work from home do not have to frequently commute to the office, which reduces the need to drive vehicles.
- Retired Individuals: Senior citizens who purchased vehicles for trips may travel once a week or a month for work or trips.
- Frequent Public Transport Users: Individuals who have purchased their dream car and have an easy public transport option to reach their workspace.
The Role of Pay As You Drive Cover
A Pay As You Drive (PAYD) cover is an add-on for a comprehensive car insurance policy. The cover allows policyholders a potential benefit on own-damage (OD) premium based on the kilometres travelled on the insured vehicle in a policy year. The main principle of the cover is simple: drive less and you get a benefit on your motor insurance premium.
This concept was introduced to offer flexibility to policyholders. It is not about restricting driving but rewarding mindful vehicle usage. Even if you drive your vehicle more than the threshold, you remain fully covered without penalty.
How does the Kilometre Benefit Work?
When you opt for this add-on, you choose a mileage band at the beginning of the policy year. At the end of the year, you submit your car’s odometer reading. Based on the total distance travelled, you become eligible for the benefit mentioned on PAYD cover. For example, insurers like HDFC ERGO’s car insurance PAYD cover give the following benefits:
| Annual Kilometres Driven | Typical Benefit on Own-Damage Premium |
| 0 – 2,500 kms | Up to 25% |
| 2,501 – 5,000 kms | Up to 17.5% |
| 5,001 – 7,500 kms | Up to 10% |
| 7,501 – 10,000 kms | Up to 5% |
| Above 10,000 kms | 0% |
Advantages of Usage-Based Car Insurance Policies
There are four main benefits of opting for a PAYD add-on to the comprehensive motor insurance policies, which are as follows:
- Financial Efficiency: You get complete cover for what you pay for the motor insurance.
- Complete Coverage Retained: With the PAYD cover, you still benefit from a comprehensive policy, which includes mandated third-party insurance, own damage cover and options to add more add-ons.
- Rewards for Claim-Free Years: In addition to the kilometre benefit, you may also be eligible to get the No Claim Bonus if you’ve not made any claim in a policy year.
- Encourages Transparency: It gives you a clear link between your driving habits and your insurance costs.
How to Pick the Right Plan for Your Needs?
At the time of choosing a car insurance policy, there are a few steps that help you choose the right plan as per your driving style. These are as follows:
- Look Beyond the Kilometre Benefit: Compare the basic motor insurance policy features, look for coverage inclusions like protection from accidental damages, personal accidents, natural calamities, theft and third-party liabilities.
- Consider Combining Add-ons: You can also include multiple add-ons along with the PAYD cover. For instance, the Zero Depreciation Cover ensures that you get an original parts claim amount on parts replacement at the time of making claims.
- Review the Claim Process: A smooth, digital claim process brings a significant advantage for motor insurance. Look for insurers who provide hassle-free and quick claims settlement.
Final Thoughts
A low usage car insurance policy can be designed to get rewards for the distance you have travelled in the vehicle. Cars that are driven less than 10,000 kilometres in a policy year often get rewarded by insurers who allow policyholders to add PAYD cover. Along with this add-on, having a comprehensive policy gives you complete protection for your car from theft, personal accidents, natural calamities, and third-party liabilities. Review the add-on, look for more low usage vehicle-specific benefits and purchase the insurance policy!