According to reports from Mint, drivers who cover less than 10,000 km annually can potentially reduce their own damage (OD) premium 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 the OD premium to the actual distance driven, allowing drivers with lower annual mileage to benefit from reduced premiums. As reported by Digit Insurance, the savings can be significant, making PAYD an attractive option for those who want to reduce their premiums while maintaining existing motor insurance coverage. "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 concept is particularly useful for people whose driving habits have changed in recent years, with work-from-home and hybrid working models reducing daily commutes for many professionals.
As reported by Digit Insurance, the PAYD premium structure varies significantly based on annual mileage. Up to 2,500 km results in 25%-40% of regular OD premium, while up to 5,000 km reduces premiums to 35%-50%. For up to 7,500 km, drivers pay 45%-60% of regular premium, and up to 10,000 km reduces costs to 60%-80%. The unlimited usage option maintains 100% of regular premium. According to HDFC ERGO General Insurance, if driving needs change unexpectedly, a 'top-up kilometre slab' can be added during the policy period to ensure coverage continuity. "The savings can be significant, making PAYD an attractive option for those who want to reduce their premiums," Kumar noted.
According to Mint, when opting for PAYD, drivers must declare their odometer reading while purchasing the policy and select a kilometre limit starting at 2,500 km in multiples of 1,000 km. Insurers provide a grace distance of up to 125 km per year. The policy covers OD car insurance with the option to carry forward unused distance into the next policy. As reported by Digit Insurance, many PAYD plans allow policyholders to select kilometre slabs that align with expected annual usage, with flexibility to add 'top-up' limits when approaching distance limits. "Many PAYD plans allow policyholders to select a kilometre slab that aligns with their expected annual usage," Kumar explained. Looking at past odometer readings can provide a good estimate of yearly usage and help in selecting the most suitable plan.
As reported by Mint, PAYD works best for drivers with predictable, low-distance driving habits, including those who work from home, rely on public transport, own multiple vehicles, or primarily use cars for occasional errands. According to Digit Insurance's Aditya Kumar, work-from-home and hybrid working models have reduced daily commutes for many professionals. The concept rewards lower vehicle usage without compromising protection, allowing drivers to enjoy existing motor insurance coverage while potentially paying lower own-damage premiums. "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. Kumar noted that retirees and residents of cities with strong public transportation networks may also fall into this category, as they frequently rely on public transport or own multiple vehicles.
According to Mint, the biggest disadvantage of PAYD is that if drivers run out of their kilometre limit, they lose the protection offered by the insurance. Drivers must constantly monitor their odometer and purchase extra kilometres with 'top-up' limits when approaching distance limits. As reported by HDFC ERGO, PAYD is a relatively new concept in India and several insurers do not offer it yet, with availability depending on 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. The biggest disadvantage is that if you run out of your km limit, you will lose the protection offered by the insurance. "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 warned.
