Insurance Regulatory and Development Authority of India (IRDAI), in June, directed insurance companies to stop selling long-term motor insurance package policy to new vehicle owners from August 1, 2020. The decision was announced by IRDAI to bring down the on-road price of a new vehicle. This means that customers purchasing a new vehicle from August 1 onwards will no longer have to purchase a long-term insurance policy which included own-damage (OD) cover and third-party insurance for three years for car owners and five years for two-wheeler owners.
Starting August 1, the long-term comprehensive motor insurance which covers damage to the vehicle and damages (or losses) caused to a third-party person, for three years for cars and five years for two-wheelers will be scrapped. This move will help new vehicle buyers as they will not have to pay a huge premium cost all at once at the time of purchasing a new vehicle.
According to Animesh Das, Head of Product Strategy, Acko General Insurance, “Discontinued part is the long term own damage (OD) component of the policy. Features and coverages for both own damage and third-party part are the same as before, just that the own damage part is now limited to just 1 year.”
He further said: “The decision will help the customer with the flexibility to switch to some other insurer for the OD part post 1 year of expiry. Also, this will reduce the upfront cost while purchasing a new vehicle.”
According to the insurance regulator, the distribution of long-term third party policies is challenging as it is unaffordable for vehicle owners. The possibility of forced selling or being linked to loans was high and that policyholders are saddled with long term product with no flexibility, it said. These are the reasons which prompted IRDAI to scrap the policy.
Buying vehicle after August 1?
If you are planning to buy a vehicle after August, you will have to buy a long term third party liability insurance, three-year for four-wheelers, and five-year for two-wheelers. Third-Party policy premiums are the same across all insurers, and the coverage is identical. So, you do not have much of a decision in the department. To ensure your vehicle for your own damage, you have two options. First, you could buy a ‘bundled’ policy which is a combination of long-term third party liability policy, and one year own damage cover.
Second, you could buy two separate policies. One is a stand-alone long-term TP policy, and the other stand-alone own damage policy. Your no-claim bonus will accrue annually. You can use your no-claim bonus (NCB) to get a discount at the time of renewal of the own-damage policy.
Insurance options available to new car buyers:
New vehicle owners will have to mandatorily buy a three-year or five-year long-term third-party motor insurance for cars and two-wheelers, respectively. They also have the option to buy a standalone annual OD policy separately from any insurer.
Das explained, “Customers will still have an option to buy 2 variants of long term motor policy, a 3 year third-party + 1-year OD or a 3 year TP only policy as opposed to 3 variants earlier that additionally included 3 years third-party and 3 years OD policy (5 years in case of bike).
This article has first appeared on ET now News(Jul 26, 2020, 12:11 IST)
