How PAYD works
Under PAYD, vehicle usage determines the benefit on the premium. “The customer generally selects a kilometre limit when buying the policy and declares the existing odometer reading,” says Paras Pasricha, head of motor insurance, Policybazaar.com.
“PAYD works like a prepaid phone plan with a data cap, with premiums devised for annual slabs such as 5,000 km or 10,000 km,” says Pradeep Funde, senior vice president, Anand Rathi Insurance Brokers.
PAYD discount applies only to the own-damage (OD) section of the policy. The mandatory third-party component remains unchanged.
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Some plans provide the discount upfront and allow the policyholder to buy additional kilometres after the selected slab gets exhausted. “Other insurers adjust the premium at renewal by applying a loading or discount based on the kilometres actually driven,” says Funde.
A conventional comprehensive motor policy offers one-year cover without a predefined mileage limit. “It charges a fixed premium for the policy period irrespective of how much the car is driven,” says Pasricha. Samdani adds that its premium depends mainly on the vehicle, insured declared value, location, customer profile and selected add-ons.
Savings depend on usage
PAYD links the insurance premium to usage. “It offers fairer pricing by charging customers for the amount of risk they present,” says Funde.
Savings depend primarily on the selected kilometre slab compared with the usage assumed under a regular policy.
“Discounts may reach about 80 per cent in certain cases for the lowest kilometre bands, or fall to 10-15 per cent for higher kilometre bands,” says Funde.
A few downsides
The discount applies only to the OD premium. “Total savings may be lower than advertised,” says Chetan Vasudeva, senior vice president, Alliance Insurance.
The OD cover may expire after the policyholder breaches the chosen kilometre slab, unless the customer buys additional cover or the plan converts automatically at a higher cost. “Customers must continuously monitor the odometer or app-based telemetry to avoid losing OD cover during the policy year,” says Vasudeva.
Pasricha adds that customers whose driving pattern changes because of frequent commuting or longer trips should review top-up options in advance.
Savings may not materialise if driving needs increase unexpectedly. “A change in travel habits can eliminate savings or lead to extra payments through penalties and top-ups,” says Vasudeva.
PAYD may also raise privacy issues. “Active monitoring through the odometer or telematics devices can create tracking and privacy concerns for policyholders,” says Abhishek Kumar, Sebi-registered investment adviser and founder, SahajMoney.com.
Who should consider it
PAYD suits car owners who drive infrequently or travel short distances and can estimate annual mileage with reasonable accuracy. “It suits drivers who travel less than 10,000 km a year, with better savings below 7,000-8,000 km,” says Vasudeva.
PAYD can suit public-transport commuters, especially in metro cities; remote or hybrid workers; multi-vehicle households; those with short or no daily commutes; weekend or errand-only drivers; retirees who drive less; and residents of smaller towns with shorter travel distances.
Frequent commuters and people who regularly make long-distance road trips should avoid these plans. “Drivers with high or unpredictable annual mileage, typically above 10,000-12,000 km, should avoid or use PAYD cautiously,” says Vasudeva.
The product may not suit customers whose usage could suddenly rise. “Mid-term top-ups or penalty deductibles can quickly wipe out the initial savings for customers whose usage is consistently high or unpredictable,” says Abhishek Kumar.
A standard policy may work better for buyers who want a fixed-cost cover without having to track mileage or purchase top-ups. Those concerned about privacy may also prefer a regular policy.
Choose the right slab
Review your driving pattern over the past few years. Compare the current odometer reading with the vehicle’s age to estimate average annual mileage. “Past service invoices or annual maintenance records can help customers calculate actual historical usage instead of relying on rough estimates,” says Abhishek Kumar.
Choose a slab close to the expected annual mileage, but retain a buffer for unplanned travel. “Customers should add a 15-20 per cent safety buffer for detours or emergency outstation trips,” says Abhishek Kumar.
Select the higher slab if your estimate is close to a limit. “Buying the next higher slab upfront may cost less than purchasing extra kilometres mid-tenure,” says Abhishek Kumar.
Check terms before buying
Find out whether the plan uses preselected kilometre slabs with top-ups or offers discounts based on historical usage. Compare OD discounts across plans.
“Buyers should review kilometre-limit terms, top-up provisions, odometer-verification requirements and the consequences of exceeding declared usage,” says Aditya Kumar, head – motor underwriting, Digit Insurance.
Compare the ease and cost of purchasing extra kilometres. “Establish whether cover continues after the limit is crossed or whether the customer must take any additional action,” says Aditya Kumar. Also check whether the insurer will reject a claim after the slab is exhausted or settle it with a higher co-payment or penalty.
Check the availability and pricing of key riders. “Verify whether bundled covers such as zero depreciation and roadside assistance remain active or lapse when the distance slab is reached,” says Abhishek Kumar.
Vasudeva cautions that customers with financed or leased cars should check whether installing telematics or onboard diagnostic devices requires lender consent or faces restrictions.
The writer is a Mumbai-based independent journalist
