Everything you need to know about ‘Pay as you drive’ motor insurance

A motor insurance policy is a must to fulfil the legal requirement of driving a vehicle in India. The Motor Vehicles Act, 1988 states that every vehicle in India should have a valid third party liability cover on it before it runs on roads. A motor insurance policy, that is why, becomes necessary. While a third party coverage is essential, a comprehensive policy offers coverage against damages to the vehicle and is recommended.

When it comes to comprehensive motor insurance plans, while the coverage in all the available plans might be same, insurance companies introduce value-added benefits to make their policies attractive. New innovations are also introduced in comprehensive motor insurance plans to adapt to the changing needs of individuals. The Insurance Regulatory and Development Authority of India (IRDAI) has introduced a project called Sandbox wherein insurance companies can introduce new and innovative products for customers. One such innovation, which has happened in the car insurance segment, is the introduction of ‘Pay as you Drive’ car insurance plans. Let’s understand what these plans are all about.

What is the concept of ‘Pay as you Drive’ car insurance?

A ‘Pay as you Drive’ car insurance policy is a comprehensive car insurance policy wherein the own damage cover can be chosen based on the usage of the car. The policyholder would have to declare the expected kilometres which the car would run in a year and based on the expected distance, the premium of the policy would be determined.

How does the ‘Pay as you Drive’ policy work?

Under the ‘Pay as you Drive’ car insurance plan, there would be three distance slabs specified at the time of buying the policy. These slabs would be 2500 Km., 5000 Km. and 7500 Km. At the time of buying the policy, you would have to provide the insurance company with the current odometer reading of your car and choose the distance slab which you expect your car to run. The insurance company would, then, determine the premium of the policy and the policy would be issued for one year.

After buying the policy, you would have to track the distance your car travels during the policy year. If the distance exceeds the chosen slab, you can move to the next higher slab or convert the policy into a regular car insurance plan. In both the cases, the premium would increase and you would have to pay the premium difference to the insurance company. If, however, the distance exceeds the chosen slab and you don’t inform the insurance company, subsequent own damage claims might not be covered by the plan. Third party claims would be, however, covered irrespective of the distance travelled by the car.

How is the premium computed for the plan?

Third party premium would remain unaffected and would depend on the cubic capacity of your car. In case of own damage premium, however, you would be able to avail a discount based on the distance slab that you have chosen. The discount would be higher for a lower slab and vice versa and the discount rates would depend on the company from whom you are buying the policy. The aggregate premium would, therefore, be calculated as the third party premium plus the discounted own damage premium.

For whom is the ‘Pay as you Drive’ policy suitable?

The ‘Pay as you Drive’ policy is suitable in the following cases –

  • If you use your car sparingly during a year and depend on public modes of transport primarily
  • If you have multiple cars and your usage is divided across those cars

    In any of these instances, you can choose ‘Pay as you Drive’ policy and reduce your premium outgo. Especially in case of multiple cars, if you choose a ‘Pay as you Drive’ car insurance policy for all the cars, you can get attractive discounts and reduce your premium outgo considerably.

Things to know about ‘Pay as you Drive’ car insurance policies

Here are a few important facts about ‘Pay as you Drive’ car insurance plans which you should know –

  • This is a new concept which has been allowed by the IRDAI on a trial basis. If insurance companies manage to sell at least 10,000 such policies within the first 6 months of launch, the product would be made permanent
  • Only a few insurance companies are currently offering the ‘Pay as you Drive’ car insurance plan. These include Bharti AXA, ICICI Lombard and Acko General Insurance among others
  • The policies are available on select platforms with which the insurance company has tied-up. These platforms include insurance aggregator websites and other online platforms as chosen by the insurance company
  • You have to constantly monitor your odometer reading as any excess usage over the chosen slab would need you to pay a higher premium for availing coverage 

How to buy ‘Pay as you Drive’ car insurance plans

As mentioned earlier, ‘Pay as you Drive’ car insurance plans are being currently offered through select channels. To buy the policy you would have to provide your odometer reading, KYC details and a consent form to the insurance company. After the premium has been calculated based on your slab preference, you have to pay the premium to buy the policy instantly from the channels which offer such plans.

You can also buy a suitable car insurance policy from Turtlemint’s platform if you are not looking to buy a ‘Pay as you Drive’ plan. Turtlemint is tied-up with leading car insurance companies and allows you to compare the available plans before buying. By comparing the available policies you can choose a plan with the best coverage benefits and the lowest premium rates. So, for a comprehensive car insurance policy you can choose Turtlemint and buy the policy online instantly in a few steps.

A car insurance plan is a must if you own a car but before buying a policy, choose the preferred coverage that you need. If you use your car sparingly you can go for a ‘Pay as you Drive’ plan but understand the plan completely before buying. For others, whose cars serve their transportation needs, a normal comprehensive policy would be a better choice for a comprehensive coverage. So, assess your needs and then choose your policy.

Frequently Asked Questions

  1. If my usage has exceeded by chosen slab, would third party claims be covered by the policy?

    Yes, third party claims would be covered by the ‘Pay as you Drive’ car insurance policy even if your usage has exceeded the distance slab that you had chosen.

  2. How much premium discount is offered by ‘Pay as you Drive’ plans?

    The rate of premium discount depends on the insurance company offering the policy. For instance, currently as on 3rd June 2020, Bharti AXA offers a discount of 25% for the slab of 2500 Km., 15% for 5000 Km. and 10% for 7500 Km. ICICI Lombard, on the other hand, offers a discount of 5% to 10% on the own damage premium. Thus, the discount offered is company specific.

  3. What is the coverage duration of ‘Pay as you Drive’ plans?

    ‘Pay as you Drive’ car insurance plans are allowed for one year.

  4. Can I use my existing no claim bonus to avail a further discount in the own damage premium if I choose the ‘Pay as you Drive’ policy?

    Yes, the existing no claim bonus discount can be used to claim a further reduction in the own damage premium in the ‘Pay as you Drive’ car insurance plan.

All you need to know about driver-based Motor Insurance

The insurance segment is undergoing a revolution as new and innovative insurance products are being offered by insurance companies. The Insurance Regulatory and Development Authority of India (IRDAI) has also established a project called Sandbox which allows insurance companies to test innovative products in the market before offering such products as full-fledged insurance plans. This project has seen several new initiatives by insurance companies. One such initiative, which is being offered in the car insurance segment, is the driver-based pay-as-you-use car insurance policy by Edelweiss. Let’s understand what the policy is all about –

What is driver-based motor insurance policy?

Edelweiss launched SWITCH, the first driver-based own damage cover for private vehicles. The policy provides floater coverage for cars and bikes under the same plan. The premium depends on the age and driving history of the user and is, therefore, dynamic. Here are some of the salient features of the policy –

  • The policy covers up to three vehicles under a single plan. These vehicles can be cars or bikes
  • Coverage is offered only for the damages suffered by the vehicle. This is, therefore, a standalone own damage motor insurance plan
  • The policy is an app-based plan. This means that it is controlled and operated through a mobile application which should be downloaded on your Smartphone
  • This is a pay-as-you-use policy. You can turn the coverage on or off based on your usage. If you are using the insured vehicle, you just have to switch on the coverage from the application and if you are not using the insured vehicles, the coverage can be turned off.
  • Since coverage is usage based, the premiums are lowered
  • The vehicles to be insured can be changed during the policy tenure
  • You can add multiple drivers to the policy and the premium would be calculated considering the drivers added, their age and driving experience 

How is the policy different from a normal motor insurance plan?

While normal motor insurance plans cover only one type of vehicle, this plan covers multiple vehicles under the same policy. Moreover, the plan is very flexible in the context that the vehicles to be covered can be added or removed and you have to pay the premium only for the days that you use the vehicle. Moreover, under the driver-based insurance plan, the premium is calculated based on the age and driving experience of the driver. This consideration is not applicable in normal motor insurance policies and this makes this policy unique.

What is covered under the plan?

The driver-based motor insurance policy covers damages suffered by the insured vehicle (s) in the following contingencies –

  • Accidental damage suffered only when the vehicle is in use 
  • Loss or theft of the vehicle whether in use or not
  • Damages suffered due to fire or explosion whether the vehicle is in use or not
  • Damage due to natural disasters like floods, hurricanes, cyclones, earthquakes, lightning, landslide, subsidence, etc. whether the vehicle is in use or not
  • Damage due to terrorist activities whether the vehicle is in use or not
  • Damages suffered due to riots, strike and any other malicious act
  • Damages suffered when the vehicle was being transported through rail, road, air or sea

    Coverage is allowed for the cost of taking the vehicle to the nearest preferred garage, getting it repaired and then delivering it at your doorstep.

Roadside assistance coverage is also allowed under the plan which covers mechanical and electrical breakdowns, immobilization due to an accident, flat tyre, dead battery, keys being locked inside the vehicle, empty fuel, contamination of fuel, local travel if you are on a tour, continuation of journey after the breakdown, cost of overnight accommodation, repatriation of the vehicle, medical coordination and urgent message relay.

What is not covered?

Coverage is not allowed in the following instances –

  • Damage suffered by a vehicle which is not added to coverage through the mobile application 
  • Damages suffered when driving without a valid license or under the influence of alcohol
  • Damage suffered if the vehicle was being used by a driver who is not added in the policy document through the mobile application
  • Depreciation and wear and tear of the insured vehicle due to usage
  • Loss or theft of the vehicle if the keys are left inside the vehicle itself or when the anti-theft mechanism of the vehicle was not working properly

How does the driver-based motor insurance plan work?

After you buy the policy, you have to install the company’s mobile application on your Smartphone. The policy would be controlled using the application that you install. You would, then, have to register on the application and provide the details of the vehicles being insured and the drivers who would be using the vehicle. Based on these details and the details of the vehicle, the premium would be computed. The premium would be divided into two components – a lump sum amount which would be payable at the outset and then the remaining premium would have to be paid as per your chosen payment frequency. 

Though the company collects the premium in advance, the actual premium would depend on your usage. You would have to turn on the coverage when you use the vehicle and then turn off the coverage if the vehicle would not be in use. Thereafter, based on your usage, any unused premium would be carried forward to the next year.

In case of claim, you can register your claim through the application itself and your claim would be settled by the company.

Benefits of driver-based motor insurance plan

This unique motor insurance plan launched by Edelweiss has many benefits for vehicle owners. These benefits are as follows –

  • The policy allows them to buy a single cover for up to three vehicles at one go. This is suitable for those who have multiple vehicles. They don’t have to buy separate motor insurance policy for each vehicle that they own
  • Since the coverage is usage-based, there is a huge savings in premiums especially for those individuals who use their vehicles sparingly
  • The policy provides a comprehensive scope of coverage with the roadside assistance add-on inbuilt within the scope of coverage of the plan. Thus, you get covered right from the time the vehicle is taken to the garage till the time that it is dropped off at your residence
  • Making claims under the policy is easy as the mobile application allows you to make a claim through pictures and videos in real time
  • It is easy to add or delete vehicle and drivers during the policy tenure
  • This is the first policy wherein the driver’s age and driving experience in considered in determining the premium amount. This, therefore, allows experienced and safe drivers to save on the premium cost.

The insurance segment is changing and with products like this customers can benefit from reduced premiums on their insurance policies. Moreover, since the plan is dynamic, it can be changed to suit the coverage requirements of individuals who have multiple vehicles. So, understand what this driver-based motor insurance plan is all about and then buy the policy if it suits your needs.

Everything you need to know regarding IRDAI’s extension on life insurance premium payment

The recent Coronavirus pandemic has brought about unprecedented changes in the economy. With the lockdown extending to prevent the spread of the virus and the emphasis on social distancing, businesses are finding out new ways of operating. Even the Insurance Regulatory and Development Authority of India (IRDAI) has been issuing new guidelines for the insurance segment in the interests of the policyholders. All the guidelines are aimed to provide reliefs to the policyholders in their insurance policies. One such guideline issued by the IRDAI was the extension of grace period allowed in paying life insurance premiums. Let’s understand the concept of grace period and what the guideline means for policyholders and insurance companies – 

What is a grace period?

Grace period is an extension allowed under a life insurance policy to pay the premium beyond the premium payment date. During the grace period the coverage does not stop. If the policyholder pays the premium within the grace period, the policy continues without any lapse. If the premium is not paid even within the grace period the policy would lapse. 

Duration of grace period

In case of policies where premiums are paid annually, quarterly or half-yearly, the insurance company allows a period of 30 or 31 days (one month) as a grace period. For instance, suppose the premium payment date in a life insurance policy is 30th June. If premiums are paid annually, the policyholder would have until 30th July to pay the due premium. The period between 30th June and 30th July would be called a grace period wherein the coverage would continue. However, if premiums are not paid within 30th July, the policy would lapse on 31st July. 

However, in policies where premiums are paid monthly, the grace period allowed is 15 days. So, if in the above example, the premiums were paid monthly, the grace period would be allowed till 15th July. From 16th July, the policy would lapse.

IRDAI’s guideline on extension of grace period

The Coronavirus pandemic resulted in a lockdown imposed by the Government since 25th March 2020. This lockdown restricted free movement and closure of businesses. Thus, policyholders whose life insurance policies were up for renewal in March found it difficult to pay the premiums due to the lockdown. Thus, keeping in mind the interest of the policyholders, IRDAI allowed an extension of the grace period allowed for premium payments. As per IRDAI’s new guideline, policyholders whose premiums were due in March 2020 can pay their life insurance premiums by 31st May 2020 and the policy would not lapse. Thus, the grace period allowed to policyholders has been extended till 31st May 2020.

Reason for extending the grace period

The sole reason behind IRDAI’s guideline to increase the grace period is to allow policyholders to renew their policies with ease. This is aimed to reduce lapsation allowing policyholders to enjoy uninterrupted coverage in their life insurance policies. If the lockdown has caused a financial crunch for individuals, they can plan their finances during the extended grace period and then pay the premium to keep their life insurance policies in force. Moreover, the extension of grace period is also aimed to avoid policyholders visiting the insurance company’s offices to renew their policies during the lockdown. IRDAI has asked insurance companies to offer online modes of premium payments to allow their customers to renew their policies online from the comfort of their own homes.

How does the guideline impact policyholders?

The IRDAI’s guideline is a welcome relief for policyholders who were worried about paying their life insurance premiums during the lockdown. For those of you who forgot the premium payment during April 2020, you can pay the premiums within the extended grace period and continue enjoying the full benefit of your policy. For those of you who had a financial crunch due to the lockdown, you can arrange for sufficient funds during the extended tenure to pay the premium and continue your policy without lapse. Thus, from the policyholders’ point of view, this extension is beneficial as it allows them to avoid lapsations.

How does the guideline impact insurance companies?

Even the insurance companies have welcomes this extension of grace period as it means better persistency for them. Persistency is measured in terms of the policies which are in force at the end of the financial year compared to the total number of policies issued by the company. A higher persistency is favourable as it provides insurance companies with revenues in the form of premiums to meet their expenses and generate a profit. Since customers are allowed a longer grace period, the policies are less likely to lapse ensuring better premium collections for insurance companies. 

The IRDAI’s new guideline on extension of the grace period, therefore, is beneficial for both policyholders and insurance companies. The measure was needed during this uncertain time of nationwide lockdown and it is expected that it would benefit the insurance segment.

Frequently Asked Questions

  1. Does the extension of grace period is applicable for health insurance policies as well?

    No, this particular guideline is applicable only for life insurance policies. For health insurance policies, if the premium payment date fell between 25th March 2020 and 3rd May 2020, the grace period allowed is up to 15th May 2020. (Source: Economic times

  2. What would happen if the insured dies during this extended grace period without paying the due premium?

    During the grace period, the coverage remains intact in a life insurance plan. Thus, if the insured dies during the extended grace period, the insurance company would pay the death benefit after deducting the premium amount which is due.

  3. If I pay the premium within the extended grace period, would I be charged an additional interest?

    No, payment of premium within the extended due date would not incur any additional interest payment. You would just have to pay the premium amount.

  4. What would happen if the policy matures during the extended grace period and the premium is unpaid?

    In case of maturity of the policy, the maturity benefit would be paid by the insurance company after deducting the premium which is due.