The traditional car insurance model is changing. Earlier, drivers paid a fixed yearly premium whether they drove 2,000 or 20,000 kilometres. For many people, this meant paying for coverage they hardly used. If your car spends more time parked than on the road, you may have been overpaying for insurance.
This is where Pay As You Drive (PAYD) insurance offers a practical alternative. Instead of a fixed premium, the cost depends on how much you actually drive. This blog explains how pay as you drive insurance works, who it is suitable for, and what you should consider before deciding to switch.
What is Pay As You Drive insurance?
Pay As You Drive (PAYD) insurance is a type of usage based car insurance where the premium depends on how much you actually drive. Instead of paying a fixed amount for the entire year, the cost is linked to the number of kilometres your car covers.
The advantages of Pay As You Drive (PAYD) insurance are:
- Cost-effective: You pay only for the kilometres you drive, helping reduce unnecessary insurance expenses.
- Flexible: Kilometre slabs can be selected based on your expected usage, unlike fixed annual premiums.
- Fairer Pricing: It removes the subsidy where low-risk, low-mileage drivers end up paying for the risks associated with high-mileage drivers.
- Transparent: Most Pay As You Drive (PAYD) car insurance providers offer a digital dashboard where you can track your remaining kilometers in real-time.
How does ‘Pay As You Drive’ car insurance work?
Understanding the mechanics of distance based car insurance is simple. Here is the step-by-step process:
- Kilometer Selection: At the start of the policy, you select a limit based on your estimated annual usage.
- Odometer Declaration: You typically provide an initial odometer reading via a mobile app or a self-declaration process.
- Usage Tracking: Some insurers use a small telematics device connected to the car, while others ask for periodic photos of the odometer.
- Top-Up Options: If you find yourself driving more than expected, most pay as you go driving insurance plans allow you to "top up" your kilometers, similar to a prepaid mobile plan.
- Grace Periods: Depending on the insurer, there may be a small grace period or a notification system when you are nearing your limit.
Pay As You Drive insurance: Inclusions and Exclusions
A common misconception is that pay as u drive car insurance offers less protection. In reality, it provides comprehensive coverage as long as you are within your mileage limit.
What is covered
- Third-Party Liability: Covers legal and financial obligations toward third-party injuries or property damage.
- Own Damage (OD): Protection against accidents, collisions, or overturning of the vehicle.
- Theft and Fire: Coverage for total loss due to stolen vehicles or damage caused by fire/explosions.
- Natural Disasters: Protection against floods, earthquakes, landslides, and cyclones.
- Man-made Calamities: Coverage for damages resulting from riots, strikes, or malicious acts.
What is not covered
- Exceeding the Limit: If an accident occurs after you have exhausted your selected kilometers without a top-up, the "Own Damage" part of the claim may be denied.
- General Wear and Tear: Routine maintenance, tyre punctures, or mechanical breakdowns are not covered.
- Invalid Documentation: Driving without a valid licence or an expired registration.
- Driving Under Influence: Any damage caused while the driver is under the influence of alcohol or prohibited substances.
Who should choose PAYD insurance?
Not every driver benefits from switching to a mileage based plan. This model is specifically designed for certain driving profiles.
- Second car: Families with spare vehicles that sit parked for most of the week can avoid expensive standard premiums on a car that is rarely used.
- Work from home: Professionals who have swapped their daily commute for home working will find this cost-effective way to stay insured without paying for unused mileage.
- Safe drivers: Since policies often use telematics to monitor speed and braking, cautious motorists can prove their low risk and access discounts not available on standard plans.
- Public commuters: If you primarily use the train or bus for travel and only drive for short errands, you can significantly reduce your annual motoring costs by paying per mile.
Comparison: Pay As You Drive vs Comprehensive Insurance
| Feature | Pay As You Drive (PAYD) | Traditional Comprehensive |
|---|---|---|
| Pricing basis | Premium is calculated based on the actual number of kilometres driven | Premium is fixed for the entire year, regardless of usage |
| Claim process | Claims are validated using odometer readings or telematics data | Claims follow standard verification procedures |
| Customisation | Allows selection of specific kilometre slabs based on usage | Offers standard coverage tiers with limited flexibility |
| Policy validity | Valid for one year, subject to the chosen kilometre limit | Valid till its active with no distance restrictions |
| Best suited for | Weekend drivers, occasional users, and low mileage car insurance seekers | Daily commuters and high-mileage drivers |
| Flexibility | High, with options to purchase additional kilometres if needed | Low, as the policy remains static throughout the year |
What factors to consider when buying payd insurance?
Before you sign up for flexible car insurance plans, keep these points in mind to ensure you get the best value:
- Review past mileage: Check last year’s service records or odometer readings to understand how much you actually drive, it helps you choose the right kilometre limit and save money.
- Compare top-up costs: Some plans may appear affordable initially but charge higher rates for additional kilometres. Park+ helps you compare top-up prices in advance, so there are no surprises later.
- Check renewal rules: Look into how renewals work, including whether unused kilometres expire or carry forward. A few insurers reward drivers who stay within their selected limit.
- Policy flexibility: Ensure you have the option to switch back to a standard comprehensive plan during renewal if your driving needs increase.
Pay As You Go driving insurance can be a practical choice for drivers who use their vehicles occasionally and want premiums that reflect actual usage. It offers transparency, potential savings, and flexibility when chosen thoughtfully. However, it requires discipline in tracking usage and understanding policy limits. Park+ offering clarity and comparison, choosing the right plan becomes easier and more reliable. Ultimately, the decision depends on how closely the policy aligns with real-world driving behaviour.