Car lying idle? How Pay As You Drive insurance can help you keep more money in your pocket

Do you drive your car for less than 10,000 km annually? Then, you can possibly reduce your own damage (OD) premium for your car insurance by up to 30% by choosing the ‘Pay As You Drive (PAYD) option.

PAYD is a usage-based ‘add-on’ that links a portion of your OD premium to the distance you drive. Instead of paying the same rate as someone who spends hours on the road every day, PAYD allows drivers with lower annual mileage to benefit from reduced premiums.

“One of the biggest advantages of PAYD is that it rewards lower vehicle usage without compromising on protection. Drivers continue to enjoy the benefits of their existing motor insurance coverage while potentially paying a lower own-damage premium,” said Aditya Kumar, Motor Underwriting Head, Digit Insurance. “The savings can be significant, making PAYD an attractive option for those who want to reduce their premiums,” he said.

How does PAYD insurance work?

The concept is simple. If your car spends more time parked than on the road, your insurance costs should reflect that lower level of risk. This can be particularly useful for people whose driving habits have changed in recent years.

Here are a few things that you should do while opting for PAYD:

Declare your odometer reading while buying the policy.

Select a kilometre (km) limit, which starts at 2,500 km and can be customised in multiples of 1,000 km. Insurers give a grace distance of up to 125 km per year.

Get coverage as per your OD car insurance policy. You can also carry forward the unused distance into your next policy.

Another key benefit is flexibility. Many PAYD plans allow policyholders to select a kilometre slab that aligns with their expected annual usage. If driving needs change unexpectedly, a ‘top-up kilometre slab’ can be added during the policy period. This ensures that occasional road trips or unforeseen travel do not become a concern.

“Work-from-home and hybrid working models have reduced daily commutes for many professionals. Similarly, those who frequently rely on public transport, own more than one vehicle, or primarily use their car for occasional errands and weekend trips may find themselves driving far less than before,” Kumar said.

“Retirees and residents of cities with strong public transportation networks may also fall into this category,” he said. “Cash savings are probably one of the most important ‘Pay As You Drive’ benefits. But if you drive less than the average car owner, you’ll pay less than average for a premium,” according to HDFC ERGO General Insurance’s explainer on PAYD.

What should you watch out for?

Before choosing a PAYD plan, drivers should assess their annual mileage carefully. Looking at past odometer readings can provide a good estimate of yearly usage and help in selecting the most suitable plan.

The biggest disadvantage of PAYD is that if you run out of your km limit, you will lose the protection offered by the insurance. You should constantly watch your odometer and buy extra kms with a ‘top-up’ limit when you are close to exhausting your distance limit to ensure uninterrupted coverage.

“Pay-as-you-drive insurance is riddled with downsides, including the possibility of having to pay more in costs if your mileage exceeds your limit. Extensive use can result in higher premiums or even penalties, cancelling out the cost savings you realised at first,” HDFC ERGO said.

PAYD is also a relatively new concept in India and several insurers do not offer it yet. The availability of PAYD also depends on your location and insurer-specific terms and conditions. “PAYD works best for those with predictable, low-distance driving habits. Frequent long-distance commuters or regular highway travellers may find traditional insurance plans more suitable,” Kumar said.

As vehicle usage patterns continue to evolve, PAYD offers a more personalised approach to car insurance. For drivers who use their cars less often, it provides an opportunity to align insurance costs with actual usage, making car ownership a little more efficient and economical.

How much can you actually save?

It depends entirely on your car usage. The less the usage, the more you save on your OD premium. Here is an indicative chart for the same.

KM band OD premium payable

Up to 2,500 km: 25%-40% of regular OD premium

Disclaimer: The discounts shown are indicative and may vary across insurers, vehicle types, policy terms, and underwriting practices.

Source: Digit Insurance

Whom does PAYD suit?

PAYD suits only a certain category of car owners. They include:

Infrequent drivers: If you drive your car only on certain occasions, then PAYD will be a good option. You will pay only for the distance your car is out of your garage.

Owner of multiple cars: If you own multiple cars, chances are that one of your cars would be used less frequently. In that case, you can choose PAYD for the car whose usage frequency is low.

High usage of public transport: If you travel more using public transport, then PAYD will suit you. It will help you save a lot of money.

For many car owners, insurance premiums remain the same regardless of how often they use their vehicle. Whether a car is driven daily or only occasionally, traditional motor policies typically do not account for actual usage. But PAYD can offer a smarter and more cost-effective alternative for low-mileage drivers.