Friday, Feb 2 2024
Source/Contribution by : NJ Publications

In major cities, people prefer to travel by train or 2-wheeler even when they own a car to avoid traffic and reduce fuel expenses. However, irrespective of the kms you drive your car, the car insurance premium still remains the same. Moreover, there are no incentives given to the people with better driving skills. It is not rational, right?

Thanks to digitalisation & modernisation in motor insurance, there are some better & newer options available in the market in the form of telematics or usage-based vehicle insurance covers.

What is Telematics in Insurance?

In 2022, IRDAI permitted Telematics / Usage-based insurance that permits Pay As You Drive (PAYD) and Pay How You Drive (PHYD) car insurance covers. Earlier, Motor Insurance in India, did not consider how different client categories possess a different degree of risk, thereby not penalising rash drivers with higher premiums.  

By using telematics devices fitted in the car, insurers can now take a client-specific pricing approach. I.e. Depending upon the distance driven, how efficiently the vehicle is driven, time of driving, braking patterns, lane discipline, etc, the premium can be charged to a client. Telematics is a technology that uses telecommunication & informatics to analyse risks related to motor insurance. There is a device that consists of a GPS that tracks the location of the vehicle. It also gives information about the car’s speed, fuel consumption, braking, etc. 

Pay As You Drive

Pay as you Drive car insurance allows the client to pay for insurance based on the distance driven, rather than standard car insurance policies that depend on geography, make-model, and age of the vehicle to determine premiums. It means that those who rarely drive their cars will pay less premium for their car policy. For people who are not out on the road often, their risk of an accident is also low, and hence, their car insurance premium should reflect this.

Insurance companies have made slabs of different kilometre limits that the client can select at the time of policy buying/renewing. For example, limits of 5000 km, 7500 km, 10,000 km. If they exhaust the limit, they can top-up additional kilometres of 500 km, 1000 km, and 1500 km.

There are several advantages associated with PAYD like:

  • Monitoring speed and tracking real-time location of the car.
  • Premium discount for good drivers and customisation of policy.
  • Such devices help in theft protection and break-down assistance, i.e. location updates on a real-time basis, which helps in better customer service and higher customer satisfaction.

Unlike other motor policies, these newly introduced coverages/add-ons are styled to give the clients more control and better savings on their motor insurance premiums.

Claim Process

If you raise a claim against the policy, the vehicle should be within the declared (selected slab) distance. For instance, if you selected a 7500 km limit, then the car should not exceed this distance limit at the time of the claim. If your car is within the limit, your claim will be processed as per normal policy terms & conditions, similar to the standard comprehensive car insurance policy.

Important Points to Consider While Taking Pay as You Drive for Your Vehicle

  1. Owning more than one car
  2. If you have more than 1 car, then you can buy the Pay as You Drive insurance for the car that is used rarely or has the least distance travelled, ideally less than 7,500 km or 10,000 km in a year.

  3. Car Usage
  4. If your yearly car usage is less than 7,500 km or 10,000 km, or if you commute to work/office using public transport, or if you travel out of town frequently and use your car rarely, then Pay as You Drive is the optimal choice of car insurance policy for you.

Cultivating positive habits for your financial health can prove to be pivotal for your financial success. Even subtle adjustments in lifestyle and savings practices can make a huge difference, for one good habit can create a ripple effect. Bringing discipline and consistency to your investment pattern and following fundamental financial health practices such as goal-based investing, budgeting, timely payment of debt, and insurance planning can lead you to a financially prosperous future. 

Imp.Note: We are registered NJ Wealth Partners and this interview published is sourced from NJ Wealth with due permissions. Reproduction of this interview/article/content in any form or medium by any means without prior written permissions of NJ India Invest Pvt. Ltd. is strictly prohibited.

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