Driving less frequently due to Covid? Know all about pay-as-you-drive insurance policies

The pandemic has completely turned the world and its norms around, more so when it comes to mobility. Whether it’s a normal workday or an outing, whatever be the destination, all decisions are centered around Covid. It might be possible that you don’t drive as often or own multiple cars and don’t drive all of them equally - regardless of your usage, third-party motor insurance is a mandate by law. The first lockdown and subsequent months had brought down road mobility by over 50%. IRDAI has taken this into account and approved a sandbox pay-as-you-drive product to ease the cost of the premium for the policyholders.?

A regulatory sandbox refers to insurers evaluating, closely monitoring and then testing innovative products before making an actual launch. These products aim to keep pace with the current environment, catering to the end user’s needs and accelerating growth in the insurance sector, overall. These policies launched by a few insurers, let car owners insure their vehicles as per the distance that they drive and not for the entire policy term or year. So, if you have been looking for ways to cut down on your premium if you are working remotely or not using your vehicles as often, this insurance policy might be the solution. Here’s what you should know before opting for these policies.

What are pay-as-you-drive-policies?

First, it’s important to understand that the third party cover - which is a lawful mandate - only covers the damages caused by your vehicle to the third party. You’d need comprehensive insurance to cover the damage to your own vehicle. The premium for this own-damage component is gauged on the basis of age, make, model and type of vehicle.?

The pay-as-you-drive policy is a combination of both. Here, the third-party premium will be as per the IRDAI’s standard rates and the own-damage premium will be determined by the actual usage or the distance driven. The usage (kilometres run) can be accurately tracked through a telematics device which will be installed in the vehicle or also through a smartphone app.?

How to purchase the policy?
To purchase these policies, the customer should ideally have an existing motor insurance policy with the insurer providing the product. If not, the customer can purchase this plan at the time of renewal of their policy. The customers will have to undergo the regular KYC formalities and fill up the consent form. You will then have to choose the slab and the period you want to be covered for under the policy, this can be different according to each insurer and product offered. These products are available on the insurers’ websites, online aggregators and other offline distribution channels as well.

What you need to keep in mind
Some features of this policy might starkly differ from a regular motor insurance policy, hence it’s important to be mindful of the exclusions and other features here.?

First and foremost, if the vehicle crosses a set number of kilometers defined in the policy, the third party cover will still remain valid while the own-damage claim may get rejected. However, insurers generally do offer the facility to add more kilometers if the usage is high.

Calculation of the premium is generally based on the distance driven and not the time spent in the vehicle. So, the long hours in congested traffic won’t be taken into account, instead, the distance covered will be.

In certain plans, you can switch your own damage cover on or off based on your needs. This however only applies to the own damage component; the third party coverage continues throughout the policy period. In case the policy is in an inactive or off state, then any accidental damage to the vehicle will not be covered.

If the policyholder cancels the policy or sells the vehicle, the standard benefits offered under the sandbox program might not be available.
You can opt for add-ons like zero depreciation cover, engine protection cover, and return to invoice cover to this policy.
The insurers will collect an upfront premium for the policy at the time of purchase itself.

Ashwini Dubey is Head - Motor Insurance Renewals,