How does pay as you drive, pay how you drive work?

Tired of paying a fixed amount of premium towards your motor insurance policy? Think you are spending so much money for no good and can’t do anything about it?

Well, the good news is that the Insurance and Regulatory Development Authority of India (IRDAI) has allowed general insurance companies to introduce technology enabled cover as an add on to purchase along with comprehensive motor policy.

Through this add on cover, insurance companies will charge own damage premium based on the driving history and usage of the owner. This means that you will be charged premium based on ‘pay as you drive’ and ‘pay how you drive’.

Read on to know all about how these new car insurance add ons will work.

What is pay as you drive insurance cover?

Pay as you drive is a type of car insurance model which enables the policyholder to customize their insurance policy, thereby helping in reducing the premium. With this type of cover, the car owner is mandatorily offered third party liability cover and comprehensive coverage is offered based on the distance covered by the car.

How does pay as you drive cover work?

The premium for this type of cover will be charged based on the below:

  • Usage Declaration: Based on the usage slabs provided by the insurer, the vehicle owner will have to declare the usage of the car during the policy period
  • Premium Charge: The premium will be charged based on the kilometers covered by the car

Features of pay as you drive insurance cover

Following are the features of pay as you drive insurance cover:

  • The policy tenure is 1 year
  • The premium for third party is decided by the IRDAI
  • This type of insurance is affordable than standard car insurance policy
  • Own damage premium is based on usage slab of the kilometers covered
  • Policyholder can avail discount of up to 25% on own damage insurance premium
  • The policy can be customized by adding different add on covers

What is the pay how you drive insurance?

This is a telematics based insurance plan for which the insurance company charges premium based on your driving behavior. The better and safer you drive, the lesser premium you pay.

How does pay how you drive insurance cover work?

With this cover, the insurance company does have an option of live tracking their driving in terms of usage and speed parameters. The pricing of the policy will be based on these parameters. The better the driving score of the insured, the lesser the premium. The driving score will be calculated based on the insurance company’s algorithm and telematics device.

How will pay as you drive and how you drive cover influence motor insurance premiums?

The introduction of these tech enabled add ons will help the insurance company in offering a personalized quote to the vehicle owner. The pricing of the car insurance quote will be linked to the individual customer’s usage and driving behavior. Today, in spite of being vehicle owners, a lot of people travel by public transport and use their own vehicle only a few times on a monthly or yearly basis. These people continue to pay a hefty annual premium. However, with the new add ons customers will have better control of the premium they are paying.


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