Pay-As-You-Drive (PAYD)

Pay-As-You-Drive (PAYD) is a motor insurance pricing structure where the own-damage premium is linked to the actual kilometres driven during the policy year, rather than to a flat annual rate. IRDAI permitted usage-based motor insurance products in 2022 under its 'Tech-Enabled Motor Insurance' framework, and several Indian general insurers now offer PAYD as an option on private cars. The buyer typically chooses an annual kilometre slab at inception — say, 2,500 km, 5,000 km, 7,500 km, 10,000 km, or 15,000 km — and the own-damage premium is priced on that band.

If the actual usage stays within the slab, the policy works like a standard comprehensive policy. If usage exceeds the slab, the buyer can top up to a higher slab during the year by paying the differential premium. PAYD is intended for low-mileage drivers — second cars in a household, weekend-use vehicles, retirees, and work-from-home professionals — for whom the standard premium structure is calibrated to a higher annual usage than they actually need.

The kilometre count is captured either through a self-declared odometer reading at policy start and renewal (with periodic photographs as proof) or through a telematics device fitted to the vehicle. Worked example: Sridhar owns a second car used mainly for weekend trips, averaging about 4,500 km a year. A standard comprehensive policy with an annual OD premium of ₹9,800 might cost roughly ₹6,200 to ₹6,800 under a 5,000 km PAYD variant — a saving of about 30% to 35%, while keeping the same statutory third-party cover, statutory owner-driver PA cover, and add-on availability.

A common misconception is that 'PAYD means you pay only when you drive'. The structure is not a daily-billing model — it is an annual policy with a kilometre cap. Premium is paid upfront for the chosen slab, and the only variable is whether you stay within the slab or top up to a higher one during the year.

Another common misconception is that 'exceeding the kilometre cap voids the policy'. It does not, but it can constrain claims — most PAYD policies allow the buyer to upgrade the slab at any time during the year by paying the differential, and a claim filed after the upgrade is settled normally. A claim filed on a vehicle whose declared kilometres have already exceeded the slab without an upgrade can attract a proportional deduction or denial, depending on the policy wording.

Related: own-damage, comprehensive-insurance, idv.