Car insurance: are pay-as-you-drive policies cheaper for low-mileage users?

Representative image

For years, car insurance premiums in India have worked the same way — fixed annual payments based on the type of vehicle, its age, engine size, and city of registration. But what if you drive your car only occasionally? That’s the logic behind “pay-as-you-drive” policies. Instead of paying the same as a daily commuter, your premium is linked to how much you actually use your car. It’s a model already popular in markets like the US and Europe, and insurers in India are now experimenting with it.

How pay-as-you-drive works

In India, insurers approved by IRDAI allow you to opt for a cover based on kilometres driven or time period chosen. For example, you may buy a plan for 3,000 km or 5,000 km a year at a lower premium than a regular policy. Some insurers use telematics devices, GPS trackers, or even smartphone apps to record mileage. Once you cross the limit, you either have to top up the cover or it converts into a standard policy with higher charges.

When it actually saves money

These policies are designed for low-mileage users: retirees who take their car out only on weekends, people who mostly use public transport, or those with a second car that isn’t driven daily. If you clock less than 6,000-7,000 km a year, you can save anywhere between 10-25% on premiums compared with a standard car policy. For someone paying ₹12,000 a year on car insurance, that could mean savings of ₹2,000-₹3,000 annually.

The catches you need to know

The discounts sound attractive, but there are limitations. Not all insurers offer pay-as-you-drive, and the coverage may exclude certain add-ons. Claims can also get tricky if your driving exceeds the covered kilometres — you’ll need to top up or risk out-of-pocket expenses. Telematics-based monitoring can feel intrusive to some, since it tracks not just mileage but sometimes driving behaviour. Also, if your driving habits suddenly change — say you start commuting daily — you could lose the benefit quickly.

What IRDAI and insurers are pushing

In 2022, IRDAI gave the go-ahead for usage-based motor insurance to encourage innovation. Since then, insurers like HDFC ERGO, ICICI Lombard, and Bajaj Allianz have rolled out variants. The regulator sees it as a way to make insurance more “personalized” and fair, instead of a one-size-fits-all premium. For insurers, it’s also a way to attract younger, tech-savvy customers who are comfortable with app-based monitoring.

Should you consider it?

If you’re confident your car runs very little each year, a pay-as-you-drive policy can be a smart choice. It rewards low usage and makes you feel like you’re not overpaying. But for families who end up driving more than expected — long vacations, shifting to office commutes, or emergencies — the savings may disappear. In that case, a regular comprehensive policy with add-ons may be safer and simpler.

FAQs

1. How do insurers track my driving?

Some use odometer readings at garages, while others use plug-in devices or smartphone apps. In most cases, the system is automated, and you can monitor usage in the insurer’s app.

2. What if I exceed my chosen kilometres?

You usually have two options — buy a top-up pack for more kilometres, or your policy automatically shifts to a standard premium rate. Always check the conditions before you sign up.

3. Are pay-as-you-drive policies available everywhere in India?

Not all insurers or cities offer them yet. They’re more common in metros where insurers can easily monitor vehicles and where adoption of digital tracking is higher.