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Pay As You Drive Insurance- How does it work?

Written by - Rudri Rawell

November 4, 2022 5 minutes

The Indian car market is zooming up once again after the Covid-19-infused slowdown. This has also resulted in faster car insurance sales. However, most car insurance schemes offered in the country are heavy on a common man’s pocket. In a bid to provide affordable motor insurance and increase insurance penetration, the IRDAI (Insurance Regulatory and Development Authority of India) opened the gates for insurers to offer ‘Pay as You Use’ insurance. 

Here’s everything you need to know about this unique motor insurance add-on and how it can benefit you as a car owner.

Introduction of ‘pay as you drive’ insurance

To cater to the changing insurance requirements of car-owners in the country, the insurance market is constantly innovating and introducing unconventional products. One such recently introduced product as per the guidelines of the IRDAI is the ‘Pay As You Drive Car Insurance’. 


Pay As You Drive Car Insurance is an add-on feature of comprehensive car insurance in which the insured car’s owner can opt for ‘own damage’ as per the car’s distance covered and condition. This add-on allows customisation of insurance policy as per the estimated distance that will be covered by the car in a year. 

How does it work

Under the ‘pay as you drive’ insurance, there are three distance slabs – 

  1. 2500 km, 
  2. 5000 km and 
  3. 7500 km

At the time of buying the policy, a car owner must inform the insurance provider about the car’s distance covered or odometer reading and accordingly select one of the above-mentioned distance slabs. The insurance premium will be determined as per the expected distance that the car will cover.

Premium calculation

The premium under the ‘pay as you drive’ insurance add-on is calculated as per:

  1. the distance-slab selected by the car owner
  2. odometer reading
  3. condition of the car

Other details should you know

  • Insurance providers also offer discounts based on the distance-slab chosen. 
  • The lower the slab, the lower will be the premium. 
  • The third-party premium remains the same in this insurance format since it is determined as per the car’s cubic capacity. 
  • As part of the process, insurance providers generally require the car owner to fill out a consent form for KYC and odometer details.

What is unique about Pay as You Drive Car Insurance

Here’s a look at some of the key features and benefits of this insurance format:

AffordableYou pay less premium as compared to a regular car insurance policy since it is calculated as per the expected distance the car will cover. Lower the usage slab, and lower the premium amount.
Free installation of telematics deviceThe insurance provider installs a telematics device free of cost on the car being insured. This monitors the car’s condition and driving habits of the car owner. 
CustomisableThe insurance policy can be customised by opting for add-on covers. If the car-usage limit is exhausted, you can shift to a higher usage slab or go for a regular damage cover. Depending on the slab or option selected, the premium will differ.
DiscountsDifferent insurance providers may offer various discounts on the ‘own damage’ premium. These could range between 5% to 25%. 

Who should buy this insurance?

This add-on is best suited for:

  1. Those who own a car but use it rarely
  2. Those who mostly use their car only for long-distance travel
  3. Individuals owning multiple cars but only one of them being used frequently
  4. Individuals who have multiple cars and tend to use all of them equally


Individuals who own more than one car but do not use them equally may find it costly to get insurance for all of them. However, even if a car is being used rarely, it is mandatory to get it insured as per the Motor Vehicles Act, 1988. With the introduction of the pay as you use insurance by IRDA, insurance providers can adopt a customer-centric approach while offering insurance solutions. Although the product specifications are yet to be disclosed by most insurers, the above-mentioned information can offer car owners a reasonable understanding of the upcoming benefits.


Is the ‘pay as you use’ insurance temporary?

The ‘pay as you drive’ insurance has been launched as a pilot project this year by IRDAI. Depending on the demand and customer reviews, the policy may be amended or extended further.

What is not covered under the ‘pay as you drive’ insurance?

Some of the aspects that are not covered under this insurance are, cars driven without a license, damage due to driving under the influence of alcohol or other banned substance, depreciation due to wear and tear, and damage or loss not updated in policy.

Is it mandatory to declare the distance driven by the car under pay as you drive scheme?

Since the pay-as-you-drive scheme’s premium amount is based on the number of kilometres the insured car has driven, it is mandatory to declare the same.

Is the pay-as-you-drive scheme customisable?

Yes, the scheme is customisable depending on the distance driven by the car and the expected distance that it will cover during the policy tenure.

What if the distance covered exceeds the distance declared in the pay-as-you-drive scheme?

In case the actual distance driven by the car exceeds the distance declared in the PAYD scheme, one can top up the cover by paying an additional premium.

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