Is PAYU for you? Usage-based motor insurance is finally here!

It is now possible to buy motor insurance and pay the premium only as per your vehicle use.

 Is PAYU for you Usage-based motor insurance is finally here!

Although popular in many parts of the world, pay as you use (PAYU) is a relatively new concept in the Indian insurance sector. Also referred to as pay-as-you-go or pay-as-you-drive, this practice will introduce car owners to a motor insurance policy that is usage-based.

It was introduced by IRDAI via a regulatory sandbox, which meant the product would be tested in a controlled environment. Accordingly, only five insurance companies have offered PAYU motor insurance. It was made available for six months, and a maximum of 10,000 policies could be sold.

Related: New IRDAI Regulations For Motor Insurance

How usage is defined

Third-party insurance is mandatory in India, and it will remain so even in case of PAYU policies. The usage based element is incorporated in the own damage portion of the cover. Kilometre-based slabs are provided to the policy buyer to choose from for their own damage cover. Therefore, if you buy a PAYU insurance policy, it will give you both comprehensive own damage and third-party liability cover. 

Presently, three slabs of 2500 km, 5000 km, and 7500 km are offered, each with a specific discount, as compared to the premium for a one-year regular comprehensive policy. If you select a particular slab and don’t use up all the kilometres, it lapses and cannot be carried forward. On the other hand, if you exceed the distance slab, you can top up by buying additional kilometres. The topped-up kilometres can be carried forward if they are unused during the policy period. 

Related: Types Of Motor Insurance Policies You Should Know About

How PAYU usage is monitored

PAYU is being implemented as a pilot project, and the insurance companies are implementing it with minor variations. For instance, Edelweiss’ PAYU policy is provided as a floater plan that will cover more than one vehicle. There would be sub-limits on each of the vehicles. The premium is calculated after considering the age and experience of the driver, with the premium payable only for the days the vehicle is used. 

ICICI Lombard, on the other hand, will be monitoring the safe driving practice of the driver and the speed of the vehicle. Similarly, TATA AIG will track the vehicle movement with an anti-theft GPS device, which will also monitor the driver’s performance.

Related: How Abiding Traffic Rules can Lower Your Car Insurance Premium?

Why should you get PAYU?

With the focus currently being on working from home and maintaining social distance, usage of personal vehicles is likely to reduce for many car owners. Particularly for these drivers, opting for a PAYU insurance policy would make a lot of sense.

  • An attractive discount is one of the obvious benefits of pay as you drive insurance. Insurance companies are offering 5% to 25% discount on the own damage portion of the premium amount.
  • Customisation is another attractive feature in these policies. You can select the kilometre slab suitable for you. In case of higher usage than expected, you can pay an additional premium and get an add-on or comprehensive cover for the rest of the policy term.  
  • A telematics device is installed in the car as part of the insurance policy. This monitors the movement and speed of your car. Most of these devices also offer app-based vehicle tracking, which acts as an anti-theft device too.
  • Going for PAYU will lower your insurance premium cost. It will therefore be beneficial for those who own multiple cars and/or use them sparingly.

Related: Here's How Your Good Driving Habits Are Going To Be Rewarded

Who should go for PAYU?

As mentioned, PAYU will benefit policyholders who don’t drive their vehicles a lot. It doesn’t hold much value for commercial vehicles as these vehicles are very likely to exceed the kilometre slabs within the policy period. In many cities, public transport is the preferred choice of commute, which reduces the need to use a personal vehicle. Then there are people who need to travel often for business or official reasons. They too don’t get the opportunity to drive their vehicle much. Vehicle owners and families who own more than one car but don’t clock many kilometres on their odometer can benefit from the floating cover of a PAYU insurance policy.  

Last words

Pay-as-you-use is a step in the right direction for the motor vehicle insurance sector. It not only helps policy buyers to save money but also promotes sensible driving. Advance telematics can detect erratic habits on the road, such as driving under the influence of intoxicants or while texting. Hopefully, such advancements will serve to improve road safety and the overall driving etiquette in the country. What is IDV and Why Insured Declared Value is Important?


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