Updated on - 19 Feb 2026
As per the provisions of the Motor Vehicles Act, car insurance is compulsory in India. But if one does not drive his/her car much or owns more than one car, it can become a financial burden. To avoid paying hefty insurance premiums in such situations, you can avail of pay-as-you-drive car insurance. We will explain how pay-as-you-drive car insurance works, its features, inclusions, and exclusions. We will also look into tips to lower the premium with pay-as-you-drive car insurance.
By the end of this article, we hope to provide a comprehensive understanding of pay-as-you-drive car insurance and its benefits to help our readers make an informed decision regarding this policy.
What is pay as you drive car insurance?
This implies “usage-based” car insurance. It allows one to pay for insurance based on the distance a person drives and how frequently he/she use the vehicle, rather than a flat fee. This means that those who drive their cars less pay a lesser amount as a premium, which can be beneficial for those who do not use their cars frequently.
In India, the Insurance Regulatory and Development Authority of India (IRDAI) has allowed insurers to introduce tech-enabled concepts, including pay-as-you-drive car insurance. One of the key advantages of PAYD car insurance is that it benefits those who do not use their car frequently. For instance, people who work from home, use public transport, or have multiple vehicles may not need to use their car frequently, resulting in lower premiums for them. PAYD car insurance can also benefit those who drive safely and follow traffic rules, as they can avail of discounts on their insurance premiums.
Overall, pay per mile car insurance is a useful innovation in the world of car insurance that can provide benefits for both drivers and insurers. It provides a fairer way of determining premiums and encourages responsible driving habits, making it a win-win for everyone involved.
How does pay as you drive car insurance work?
Pay-as-you-go car insurance is an excellent policy for individuals who don’t frequently drive or have low mileage, as it allows them to save money on their car insurance premiums.
The premium for pay-per-mile car insurance is calculated based on the number of kilometres driven by the driver. If a person drives the car for less than 15,000 km in the relevant year, the insured is eligible for the PAYD policy. The number of miles or kilometres travelled is determined through odometer readings declared by the insured.
Those eligible for a pay-as-you-drive car insurance plan can also avail of a discount of up to 10% on their “own-damage” insurance premium. The claim settlement process for the PAYD plan is similar to any other car insurance policy. This insurance is an excellent option for people who do not use the car frequently because if the mileage limit exceeded, you may have to pay an additional premium. Therefore, it is essential to calculate the estimated mileage beforehand to avoid any surprises in the future.
Features of the pay as you drive car insurance policy
The PAYD policy is a significant instrument for those who do not drive much or own more than one car. This type of plan helps these people save significantly on their insurance premiums. The notable features of the PAYD insurance plan are:
- The PAYD policy lasts for one year.
- The premium is calculated based on the odometer reading.
- Get a discount of up to 25% on the own damage portion of your car insurance.
- You can opt for the add-on coverage.
- This policy provides coverage for your own damage and also third-party liability.
Inclusions of pay as you drive insurance policy
Here are the inclusions of PAYD car insurance policies:
- Damage caused due to accidents
- Theft or vandalism
- Damage due to natural disasters
- Third-party liability
- Damage due to fire or explosion
Exclusions of pay as you drive car insurance policy
Like all insurance policies, PAYD car insurance policies have certain exclusions that policyholders need to be aware of. These exclusions are:
- Intentional damage
- Driving under the influence of drugs/alcohol
- Driving the car without a valid driving license
- Depreciation
- Damage due to electrical or mechanical failure
Tips to lower the premium with PAYD insurance
Since pay-as-you-drive car insurance is a type of auto insurance that bases its premium on how much and how safely a driver drives, here are some tips that policyholders can follow to lower their premium with PAYD insurance:
- Drive less: The less you drive, the lower your premium will be. If possible, try to carpool or use public transportation to reduce the number of miles you drive.
- Drive safely: Safe driving habits like obeying traffic rules and driving within the speed limit can help lower your premium.
- Choose a car with safety features: Cars with safety features like airbags and anti-lock braking systems can help lower your premium.
- Do not drink and drive: Drinking and driving are dangerous and can increase your insurance premium.
- Follow defensive driving techniques: Defensive driving techniques can help reduce your risk of getting into an accident.
Conclusion
Pay-as-you-drive insurance helps you save money if you don’t drive your car a lot. You pay based on how many kilometres you drive, so the less you drive, the less you pay. It still gives you full protection, including third party car insurance and coverage for damage to your own car. If you want a simple and budget-friendly way to stay insured, PAYD is a smart choice.
FAQs
1. How does PAYD insurance help me save money?
PAYD insurance lets you pay based on how much you drive. If you use your car less, you can save up to 25% off your own damage premium.
2. What happens if I exceed the kilometres in my chosen slab?
You can either upgrade your slab or pay for extra kilometres. Insurers usually give you flexible options to stay covered without a hassle.
3. Can I still get add-ons with PAYD insurance?
PAYD plans work just like standard ones when it comes to add-ons. You can boost your coverage with options like zero depreciation, roadside assistance, and more.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the Insurance industry and products. It is advised to verify the currency and relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.