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The standard comprehensive car insurance plan covers a wide variety of risk factors. Car owners can have peace of mind as the policy covers the risk of third-party liabilities, accidental damage, and theft. However, there are certain limitations to these regular insurance coverage plans.

A basic plan offers similar coverage for every person and does not take into account your unique situation or requirements. No matter how well you drive or how little you drive, you do not enjoy any concession in premiums.

In this regard, the ‘pay as you drive insurance’ is a revolutionary concept in motor insurance. You can now get enhanced insurance coverage and save a significant sum on your annual premiums.

What is the Pay as You Drive Car Insurance?

The ‘pay as you drive car insurance’ is a type of add-on cover in car insurance where you pay premiums depending on your usage of the vehicle.

The car insurance premium is calculated based on how much you drive and how well you drive your car. This policy is also known as ‘pay per mile car insurance’ or ‘drive less pay less car insurance’. The policyholder pays lower premiums on the ‘own damage component’ of car insurance.

 

The risk of accidents or mishaps is correspondingly lower if you drive less and drive well. The pay as you drive motor insurance results in lower insurance premiums for such people. Otherwise, all car owners are forced to pay a flat fee irrespective of their usage.

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How Does the Pay as You Drive Car Insurance Work?

The pay-as-you-go car insurance is quite similar to a regular car insurance plan. However, the former uses kilometer-based slabs to set annual premiums. The details are as follows:

Choosing Kilometer Slabs

You can select different kilometre slabs based on your average usage. Typically, these slabs are divided into - less than 3,000 km, 3,001 to 5,000 km, and more than 5,000 km range.

Calculation of Premium

The insurance premium shall be determined based on your chosen kilometre slab. The higher the slab, the higher the insurance premium.

Installation of a Telematics Device

After choosing a kilometre slab and paying the premium, you have to install a small telematics device in your car. This device tracks your vehicle usage to obtain information related to distance, speed, time of driving, braking patterns, etc.

Smartphone App Connection

The telematics device installed in the car has to be connected to a particular app on your phone. This enables you to access real-time data related to your car driving. This also helps to avoid any discrepancy between you and the insurer about the car’s usage. Further, the information helps improve your driving habits, too.

Pay As You Drive Insurance Eligibility

Although there are no fixed criteria for purchasing pay as you drive insurance, most insurers consider the following criteria to issue the policy:

Regular Cars

The coverage is usually not provided to luxury or high-end cars that are expensive. The price limit for the vehicle may vary from one insurer to another.

Annual Usage

Policyholders are required to provide an estimate of how many kilometres they would drive in a year. Certain insurers do not issue the policy if the usage is below a pre-determined limit.

Ownership Transfer

Insurance providers also take cognizance of car ownership transfer cases while issuing the policy.

Previous Claims

A few insurers do not accept requests from policyholders who have filed car insurance claims in the previous year.

What is Covered in the Pay as You Drive Car Insurance?

The following aspects are covered in the pay-as-you-drive motor insurance policy:

What is Not Covered in the Pay as You Drive Car Insurance?

The general exclusions of the pay as you go motor insurance policy are as follows:

Features & Benefits of Pay as You Drive Motor Insurance

The features and benefits of the pay as you drive car insurance plan have been outlined in the table below:

Features

Benefits

Lower Cost

Occasional drivers can benefit due to lower usage. They pay lower premiums compared to the standard car insurance plan.

Personalized Coverage

The insurance policy can be customized based on your estimated usage of the car in a year.

Comprehensive Coverage

Policyholders can enjoy all the benefits of a traditional policy with significant savings.

Flexibility

Policyholders can top-up their existing plans if they exceed the driving limit and ensure continuous coverage. They also pay lower premiums if they are not using the car regularly.

What Happens If You Exceed the Driving Limit?

The right selection of kilometre slabs is a critical step in pay as you drive car insurance. However, there is a possibility that some drivers may exceed the chosen limit. The insurer instantly obtains this information through the telematics application and contacts you regarding the same.

Now, you can either top up your existing plan (for the extra distance) or shift to a different plan with a higher limit if you have not filed any claim during the period. The insurer shall fix the new premium on a pro-rata basis.

Note: The premium adjustments required after exceeding the driving limit apply only to the ‘own damage component’ of car insurance. The premium payable for third-party liability insurance remains unaffected due to these changes.

Difference Between Pay as You Drive and Comprehensive Car Insurance

The key differences between pay as you drive and comprehensive car insurance plans are provided in the table below:

Pay as You Drive Insurance

Comprehensive Car Insurance

Premium Calculation

Based on the distance covered by the car in a year

Premium Calculation

Based on factors like the car’s model, place of use, driver’s age & driving habits

Coverage

Comprehensive coverage with premiums based on actual usage

Coverage

Third-party claims, damage due to accidents, fire, and loss due to theft.

Cost of Premium

Value for money as the premium is lower for safe & occasional drivers.

Cost of Premium

Premium is fixed and maybe high as it is not based on the actual usage.

Flexibility

Highly flexible as the premium is based on your actual usage and driving habits

Flexibility

Limited flexibility as the premiums are fixed

Kilometer Limit

You have to choose a kilometre slab based on your estimated usage of the vehicle

Kilometer Limit

Not Applicable

Telematics

You have to install a telematics device to track the vehicle

Telematics

Not Applicable

Claims

Claims can be filed until you have not crossed the Km limit

Claims

Claims can be filed as long as the policy remains active

FAQs about Pay as You Go Car Insurance

The premium for a pay-as-you-drive car insurance policy is calculated based on your vehicle usage. Hence, it is best suited for

  • occasional drivers who don’t use their cars daily and
  • experienced drivers with an excellent driving track record.

At the time of purchasing the policy, you have to declare the estimated distance that shall be covered by your car in the policy period. You are given different ranges of kilometre slabs to make a choice. The premium is calculated based on this slab

If you exceed the chosen distance limit, you can either top up your existing plan or buy another plan with a higher limit.

If you own multiple vehicles, it is advisable to purchase the pay-as-you-go car insurance policy for the vehicle that is least used among the lot. This ensures that you get the best savings on premiums.

Disclaimer: The pay-as-you-drive car Insurance may have limitations, exclusions, and other terms and conditions that may affect coverage. please read the policy wording documents carefully as they detail the terms and conditions under which your policy will cover your vehicle.