Buying new car or bike? Long-term vehicle insurance is now mandatory; Here’s how it impacts you

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Updated: August 30, 2018 4:25:58 PM

IRDAI has made the long-term insurance cover for new cars and two-wheelers mandatory, and directed all the general insurers to offer this cover with effect from September 1 this year.

auto insurance, car insurance, long term vehicle insurance, IRDAI, supreme court, third party liability insurance, comprehensive coverA major drawback of these long-term policies would be that the customers would be overburdened with a large premium amount payable at one go.

Be ready to shell out more from Saturday as following a recent Supreme Court order, the Insurance Regulatory and Development Authority of India (IRDAI) has made the long-term insurance cover for new cars and two-wheelers mandatory, and directed all the general insurance companies to offer this cover with effect from September 1 this year.

According to industry experts, the third-party liability only policies would be for three years for cars and five years for two-wheelers. The regulator has, however, given the insurers the liberty of providing comprehensive insurance policies of the entire duration of three and five years for cars and bikes. They can also provide a combination of one-year comprehensive plan and long-term three and five-year third-party liability cover.

IRDAI has, thus, introduced 3 options for the long-term products for new Cars and Two-wheelers:

# Standalone 3/5 years TP Only

# Package 3/5 years Policy (Including TP & accident cover for 3/5 years)

# Bundled 3/5 years policy (which covers 3/5 years TP & 1 Year accident cover)

“An insurer can offer all the 3 options to the customers. However, it is always recommended to take the bundled option of 1-year vehicle accident (OD) part, as it covers the damage of your new car. In case of standalone TP Only policy, while it saves premium, you’ll end up without insurance cover for your vehicle damage which may turn out to be a big loss in case of a major accidental damage or theft of the vehicle,” says Animesh Das, Head of Product Strategy, ACKO General Insurance.

In case of package policy for 3/5 years, you need to shell out a higher amount of premium and you may get stuck with the wrong insurer for 3 years. The bundled policy where you can take 1-year vehicle accident cover with 3/5 years TP looks like an optimum option to go ahead with.

These new product constructs are applicable for new vehicles only. Thus, it’s going to impact the new car buyers.

For a Sedan segment car (these numbers are indicative):

Current Package policy (1 year): ~ Rs 30000/-

Standalone TP (3 years): ~ Rs 11500/-

Package Policy (3 years): ~ Rs 75000/-

Bundled Policy (3 years TP & 1 year OD): ~ Rs 37000/-

No-claim bonus is offered on the OD component of the premium only. So, NCB will be applicable to Bundled or Packaged policies only and not on the Long-term TP only policy.

As per IRDAI, NCB would be applicable when the policy term is completed, i.e. 3-years for Packaged and 1-year for Bundled. A claim-free term (3 years) of a Packaged policy would fetch a 35% discount on the 4th year policy cover while a claim-free term (1 year) of a Bundled policy would fetch a 20% discount on 2nd year renewal.

Pros & Cons of long-term policies

The major benefit of this move would be a reduction in the gap between the number of insured and uninsured vehicles. “With long-term insurance plans available right from the starting point, it will also increase insurance penetration of these products. This will further curb the practice of people driving their vehicles without any insurance cover even after the one-year expiry period. With long-term policies coming into the picture, people will have insurance cover for their vehicles for a longer duration. This will free them from the hassle of remembering the policy expiry/renewal due date every year,” says Devendra Rane, Founder & CTO, Coverfox.com.

However, a major drawback of these long-term policies would be that the customers would be overburdened with a large premium amount payable at one go. However, the customers would be benefited with the premium amount being locked for the entire duration of three and five years. The entire premium would be payable right at the beginning of the policy. The policy once issued cannot be cancelled until and unless it is a case of double insurance or sale or transfer of the insured vehicle.

What to do?

Industry experts say that the primary impact of this move will be that buyers will get stuck with the insurer promoted by the dealers. However, “one thing which many customers are not aware of is that it’s not mandatory to take insurance from the car dealership. You can take insurance on your own from any medium, be it agent, broker, online websites or even direct insurers. It is, however, recommended to check the prices online before buying your car/bike insurance,” advises Das.

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