6 MinsAugust 17, 2022
The Indian insurance industry has come a long way thanks to the innovations by the Insurance Regulatory Authority of India (IRDAI) and insurance providers. A recent example of this innovation is the ‘Pay As You Drive and Pay How You Drive
Car Insurance’.
While having a Comprehensive Car Insurance Plan is advisable, it can cost you a pretty penny, especially if you do not use the car often. To address this issue, many general insurance providers have launched ‘Pay As You Drive and Pay How
You Drive Car Insurance’.
If car owners can save their premium costs based on how they drive, then they may be encouraged to buy Comprehensive Motor Insurance instead of the mandatory Third Party Insurance Covers. Hence, this initiative may also give a much-needed fillip
to Motor Vehicle Insurance in India and increase its penetration.
IRDAI has permitted general insurance companies to introduce the following tech-enabled add-on options:
1. Pay As You Drive
2. Pay How You Drive
3. Floater Policy
These tech-enabled add-ons or Motor Insurance Policies allow you to get a 5% - 25% discount on the premium, depending on the running of your car, your driving quality, how many vehicles you cover, and the insurance company’s terms and conditions.
These covers can be provided as add-ons to the basic Comprehensive Car Insurance Policies.
The insurer tracks the distance covered by your car, its speed, driving pattern, and other required data with the help of a telematics device, which will be placed in the insured car without any additional charges. The data received from the installed
telematics device is further used to calculate the premium of the ‘own damage’ part of the Comprehensive Car Insurance with selected add-ons.
Let’s learn how these add-ons work.
(1) Pay As You Drive Car Insurance:
Pay As You Drive Car Insurance, also known as Pay As You Go, is a Comprehensive Car Insurance plan or add-on that charges the premium based on how much you drive your car. The insurer asks
for the estimate of the distance your car will travel in a policy period (typically, a year). Based on that, your Car Insurance premium will be calculated. There are three specified slabs; 2500 km, 5000 km, and 7500 km. In case you exhaust
your specified limit, you can upgrade to a higher slab or convert your policy into a regular Comprehensive Car Insurance Policy.
Here’s the discount chart for Pay As You Drive Car Insurance:
| Distance Slab (km per year) | Discount on Own Damage Car Insurance |
|---|
| 2500 km | 25% |
| 5000 km | 15% |
| 7500 km | 10% |
| Unlimited driving (regular Comprehensive Car Insurance Plan) | No Discount |
(Note: The distance slabs and discounts are indicative and may vary from insurer to insurer)
(2) Pay How You Drive Car Insurance:
Pay How You Drive is a telematics device-based Comprehensive Car Insurance that calculates the premium based on your driving behaviour. The device gives you a score based on the tracked
driving quality, and your car insurance premium will be decided.
The safer you drive, the higher score your score, and the higher your score, the lower your premium. Besides tracking your driving behaviour, the telematics device
also offers you periodic reports of how safe you drove, along with tips for safer and better driving based on your past driving pattern.
(3) Floater Policy:
A Floater Policy is introduced, keeping in mind the vehicle owners who have more than one vehicle. Similar to Floater Health Insurance which covers all your family members under a single Health Insurance
Policy, the Floater Policy can cover all your vehicles, including two-wheelers, in a single policy.
However, you cannot add the vehicles registered in your spouse’s or other family members' names in the same policy. All the
vehicles that you want to cover under a Floater Policy need to be registered in your name only
[Also Read: Considering buying a life insurance policy?]
Who should opt for these covers
Pay As You Drive, Pay How You Drive and Floating Policy are currently offered only by a few insurers. Also, the premium discounts are offered only on the ‘own damage plan’.
This means that the Third-party Insurance Cover, which is a mandatory requirement, is not eligible for these discounts.
As a vehicle owner, you have an option to upgrade the plan to the higher slab (for a better discount) or convert
the plan into a regular Comprehensive Car Insurance Plan. Bear in mind that you must upgrade the plan well before hitting the threshold limit, as exceeding the limit will make the policy void, and the claims made after that may be rejected
by the insurer.
Pay As You Drive Car Insurance is ideal if you do not use your car very often, your typical running is usually lower than the specified slabs, and you do not use your car for long distances. You can
also buy this cover for the less used car/cars if you have more than one car and consider using only one car often.
You can consider Pay How You Drive Car Insurance if you are confident about your driving quality,
never do off-road driving, always follow all the traffic rules, take good care of your car, and hardly use it for long distances.
On the other hand, the Floater Policy is suitable for you if you own more than one vehicle in your
name and use them equally or only one/more frequently.
Make a wise choice, and drive safely!
Disclaimer: This article has been authored by PersonalFN, a Mumbai-based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
