Starting from September 1, individuals who are purchasing new vehicles will need to purchase long-term motor insurance covers mandatorily. New car owners will need to purchase three-year insurance covers for their vehicles, while new two-wheeler owners will need to purchase 5-year insurance covers for their vehicles.
The initial cost of the insurance cover for new vehicles will, thus, cost more. However, premium rates will vary as per the model and type of the vehicle. For cars with an engine capacity under 1000cc and for two-wheelers with a cubic capacity lesser than 75cc, the long-term insurance cover is expected to be more affordable. The key benefit of long-term motor insurance policies is that policy buyers will not have to go through the hassle of renewing their policies every year.
On 20 June 2018, the Supreme Court (SC) of India issued an order stating that the third-party motor insurance policy for new cars and new two-wheelers would have to be for a minimum period of three years and five years, respectively. Insurance companies were directed to offer third-party motor insurance covers with longer tenures due to low motor insurance penetration in India, despite the third-party insurance cover being mandatory for all vehicles.
To this end, the Insurance Regulatory and Development Authority of India (IRDAI) has asked insurance companies to apply their respective underwriting policies and norms and begin the distribution of long-term motor insurance products from September 1. Motor insurance companies can, thus, based on their discretion offer a long-term package motor insurance cover, which will cover both third-party legal liability and own damage, or a combination of a 1-year own-damage cover and a long-term third-party insurance cover.
Insurance companies have been instructed to collect the premium amount from vehicle owners for the entire tenure, i.e. 3 years for cars and 5 years for motorcycles/scooters. The policyholder will not be allowed to cancel the third-party liability-only insurance cover at any time during the policy period, unless in the event of double insurance or if the vehicle is sold/transferred/not in use. Also, policyholders will be able to avail the No Claim Bonus only upon the completion of the policy term for the own damage component.
Source: The Economic Times, The Times of India