Pay-As-You-Drive Car Insurance: Is It Worth It For Low-Mileage Drivers?

Car insurance premiums in India traditionally follow a fixed annual payment model, determined by factors like vehicle type, age, engine size, and city of registration. But for drivers who use their cars occasionally, “pay-as-you-drive” (PAYD) insurance offers a flexible alternative. Instead of paying the same premium as daily commuters, your insurance cost is linked to your actual usage. This model, popular in the US and Europe, is now gaining traction among Indian insurers.

How Pay-As-You-Drive Policies Work

In India, IRDAI-approved insurers allow policyholders to choose coverage based on annual kilometres or time period. For example, a plan for 3,000 km or 5,000 km a year may cost significantly less than a standard policy. Some insurers use telematics devices, GPS trackers, or smartphone apps to record mileage. Exceeding your limit either requires topping up the coverage or converting to a standard policy at higher rates.

When It Saves You Money

PAYD policies are ideal for low-mileage users: retirees who drive occasionally, people relying mostly on public transport, or owners of a second car. If you drive less than 6,000–7,000 km annually, you could save 10–25% on premiums compared with standard insurance. For instance, a ₹12,000 annual premium could drop by ₹2,000–₹3,000.

Cautions and Considerations

While attractive, these policies have limitations:

• Not all insurers offer PAYD coverage.
• Certain add-ons may be excluded.
• Claims could be complex if mileage exceeds limits.
• Telematics tracking can feel intrusive as it may monitor driving behaviour.
• Sudden changes in driving habits, like daily commuting, can nullify savings.

Borrowers should carefully review policy terms before committing.

Regulatory Push and Insurer Offerings

IRDAI approved usage-based motor insurance in 2022 to promote innovation. Insurers like HDFC ERGO, ICICI Lombard, and Bajaj Allianz now offer PAYD policies. The regulator aims to create “personalised” insurance options, moving away from a one-size-fits-all approach, while insurers attract younger, tech-savvy customers comfortable with digital monitoring.

Should You Opt for a PAYD Policy?

If your car usage is consistently low, PAYD insurance can be cost-effective, rewarding minimal driving. However, for families or frequent travellers, the flexibility of a regular comprehensive policy with add-ons may be safer and simpler, as exceeding kilometre limits can reduce benefits.

FAQs

1. How do insurers track my driving?

Some use odometer readings, plug-in devices, or smartphone apps. Most systems are automated and can be monitored via the insurer’s app.

2. What happens if I exceed my kilometre limit?

You can either buy a top-up pack for additional kilometres or your policy converts to a standard premium rate. Always review conditions before signing.

3. Are PAYD policies available across India?

Availability is currently limited to certain insurers and major cities, where digital tracking adoption is higher.