Should You Buy Pay As You Drive Car Insurance?
The motor insurance industry in India saw a new entry in the form of pay as you drive car insurance in early 2020. Several insurance companies have launched the newly-launched pay as you drive car insurance plans as part of the IRDAI’s Sandbox project. In fact, it is touted as one of the best car insurance plans in terms of affordability. In case you are clueless as to how is pay as you drive insurance different from other car insurance plans, take a moment to understand its concept below.
What Is Pay As You Drive Car Insurance?
Pay as you drive car insurance is a usage-based motor insurance that charges premiums based on the usage of the vehicle. It is a comprehensive insurance that protects your car from both third party liabilities and own damages but charges premium based on the total number of kilometres driven by your four wheeler. It is also known as pay as you use car insurance.
Under pay as you drive car insurance, car owners are required to declare the usage of their car during the policy year based on the total number of kilometres they expect to cover. The insurance provider will charge a premium based on the declared kilometre. So if you don’t use your car often, you will declare a lower kilometre limit and accordingly, your car insurance premiums will be lower. Thus, pay as you drive car insurance premiums are lower than regular motor insurance premiums.
Pay as you drive car insurance is available in both individual and floater plans. The floater plan allows a car owner to cover all of his/ her cars under a single insurance policy with different kilometre limit for each vehicle. This option is useful for people who own more than one car.
Unlike regular car insurance plans, you cannot buy a third party liability only policy under pay as your drive car insurance. This is because pay as you drive insurance plan offers only comprehensive insurance cover to car owners. Moreover, you can enjoy third party coverage throughout the policy tenure but the own damage cover is available until you reach your declared kilometre limit.
Currently, the pay as you drive car insurance is being offered by several motor insurers in India on an experimental basis for a period of one year. If the insurers are able to sell at least 10,000 policies within a span of six months, they will be able to offer pay as you drive plan as a regular car insurance policy.
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How Is Pay As You Drive Car Insurance Premium Calculated?
Generally, an insurance company determines the premium for a car insurance policy by calculating its liabilities towards the car owner. While the third party premium is decided by the IRDAI, the own damage premium is calculated based on several factors, such as the age of the car, its makes & model, its geographical location, no claim bonus, deductibles, etc. Even the best car insurance companies do not consider how often you use your car while determining the cost of your car insurance policy. As a result, you end up paying a hefty car insurance premium even though your car is hardly used.
For example, suppose you have retired and use your car only on festivals and family functions. Despite low usage, you will be required to pay the same insurance premium, which you would have paid in case of daily use of your car. Moreover, you don’t have the option of doing away with car insurance as it is mandatory under the motor laws of the country.
However, pay as you drive car insurance determines premiums based on how many kilometres your car covers during the policy year. This means that if you use your car occasionally, your car insurance premiums will be lower. Similarly, if you use your car regularly, you may have to pay a higher premium for your comprehensive insurance policy. Thus, pay as you drive car insurance frees you from paying hefty premiums if your vehicle is not used often.
Additionally, few insurance companies also consider other factors to determine the premiums under pay as you use car insurance. These factors include the age of the car owners, their experience and driving habits. For example, if you have safe driving habits, your insurer will reward you by lowering your premium.
Just like regular car insurance plans, pay as you drive insurance plan offers add-on covers and discounts to car owners. You can extend the coverage of your car by buying available add-on covers, such as return to invoice cover, zero depreciation cover, etc. However, the cost of the add-on cover will be over and above the premium payable for pay as you drive insurance. On the other hand, discounts are only offered on own damage premiums.
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How Does Pay as You Drive Car Insurance Work?
The pay as you drive car insurance works on the concept of usage. The lesser you use your car, the lower you will pay for your car insurance premium and vice-versa. To determine the usage of your car, you are required to declare the total number of kilometres you expect to cover with your car during the policy tenure.
Insurance companies have come up with fixed kilometre slabs or categories for car owners to choose. All you need to do is choose the kilometre slab that suits your car usage and your insurer will charge you a premium based on the chosen slab. For example, one insurer offers kilometre slabs of 2500 km, 5000 km and 7500 km while another insurer offers 3000 km, 500 km and 7500 km slabs.
Besides choosing the kilometre slab, you may have to provide the odometer reading of your car at the time of buying a pay as you drive car insurance. Your insurer may also install a free telematics device in your car. This device will monitor your driving habits, assess the condition of your car and help you check the remaining kilometre limit under your slab. If a telematics device is installed in your car by your insurer, you won’t need to provide your odometer reading.
Insurance companies also offer discounts on pay as you drive car insurance premiums. People who opt for lower kilometre slabs have chances of saving more as compared to those opting for higher kilometre slab. Few insurers allow you to save up to 25 per cent on your premiums if you opt for the lowest kilometre slab.
In case, the limit of your kilometre slab gets exhausted during the policy year, you can easily recharge it by contacting your insurance provider. Few insurers also allow you to carry forward the unused top-up balance to the next policy upon renewal. However, you cannot carry forward the remaining kilometres from your slab if you are unable to exhaust it by the end of the policy tenure.
Is Pay As You Drive Car Insurance Suitable for You?
When you hear about pay as you drive car insurance, almost everywhere it is touted as an affordable car insurance policy with lower premiums. But what is important to know is if it is suitable for you and will it make your car insurance affordable. Take a look at who should buy pay as you drive car insurance and who shouldn’t.
Who Should Buy Pay As You Drive Car Insurance?
Pay as you drive car insurance is suitable for everyone who doesn’t use his/ her car regularly. If your car stands in the parking lot more than it runs on the road, usage-based car insurance is what you need. For example, people who use public transport more than their own cars, people who travel outstation frequently and people who get office cab to commute every day.
If your car is hardly used, your car insurance premiums will be substantially reduced with usage-based insurance as compared to regular car insurance premiums. Moreover, you will also be able to reduce your premiums to up to 25 per cent if your insurer provides discounts on certain kilometre slabs.
The pay as you use car insurance is also ideal for people who own multiple cars and do not use all of them as much. When you own multiple cars, you can drive only one car at a time. If you have only one car, you will use it every time you need to go somewhere. But when you have more than one car, the usage of a car reduces. Hence, pay as you drive car insurance will benefit you by allowing you to pay for car insurance premiums based on the usage of your car.
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Who Should Not Buy Pay As You Drive Car Insurance?
If you drive your car daily, pay as you use car insurance may not be of much help to you. Your car insurance premium may still be high if you travel more than the highest kilometre slab limit. Also, you will have to top up the limit upon exhaustion adding to the expenses. Hence, you should not opt for pay as you drive insurance if you use your car frequently.
Also, if you forget to recharge your slab limit and an accident happens, you won’t be able to make any own damage claim under pay as you drive policy. This is contrary to regular car insurance plans where the own damage cover is available throughout the policy tenure if you have purchased comprehensive insurance policy.
Moreover, the discounts available on kilometre slabs will only be helpful for people with expensive cars. This is because the discounts are applicable only on own damage premiums which won’t be a lot for small and medium-sized cars. Thus, you should compare your premiums under regular car insurance and pay as you drive insurance plan before choosing any one plan.
In a Nutshell
Pay as you drive insurance is the best car insurance plan for people who don’t use their cars frequently. It will provide you with comprehensive insurance coverage without being heavy on your pockets. If your car is not used often or is you own multiple cars, opting for pay for you drive car insurance may be a smart idea to save some money.
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