Have you ever thought of the financial burden your vehicle insurance incurs regardless of the vehicle’s usage? What if you take your car out of the garage only once a week for a short drive. Effectively, less car usage means lower possibility of collision and therefore, leads to fewer insurance claims.
This should, ideally, incentivise the policyholder to pay a lower premium but it doesn’t happen in a standard comprehensive car insurance plan. The alternative, however, is ‘pay as you drive’ insurance plan.
What is ‘pay as you drive’?
Pay as you drive is an insurance plan that enables policyholders to save money on their ‘own damage’ component depending on the total number of kilometres covered in a year.
It is a kind of comprehensive car insurance plan that helps a policyholder cut down on his/her premium based on the car usage. In other words, if you use a car less, you will pay a lower premium.
You can customise the insurance policy based on the vehicle’s usage in terms of the estimated distance to be covered by the car. At the same time, if you feel you are about to cross the total distance travelled, you can top it up to ensure the coverage.
“It is a cost-effective solution, particularly for infrequent vehicle users like urban dwellers reliant on public transportation or families with multiple cars. Various insurers adopt different PAYD policy models. Some plans enable setting an annual driving limit with corresponding premium slabs, while others allow users to ‘switch off’ their policy on non-driving days, earning bonus days for every switched-off day,” says Nitin Kumar, Head, Motor Insurance, Policybazaar.com.
How does it work?
In this plan, you are supposed to declare the number of kilometres the vehicle will cover during the policy period. The premium is a function of the number of kilometres the vehicle is driven.
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The policyholder must give the odometer reading of the car before the policy expiry to avail the discount on the own damage premium.
While raising the claim, the vehicle should be within the declared distance. For example, when you had opted for 5,000 km, the car should not exceed that distance limit at the time of raising the claim.
“If the car exceeds the specified kilometres, the insurer retains the right to reject the claim. However, customers can proactively address this by opting to purchase additional kilometres during the policy period at a nominal premium,” adds Nitin Kumar.
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Published: 18 Feb 2024, 02:46 PM IST