How Will Mandatory Long-Term Motor Insurance Impact You?

Now from 1st September, 2018, be ready to shell out more on your motor insurance premium. Following the recent order of Supreme Court, the Insurance Regulatory and Development Authority of India (IRDAI) has made the long-term motor insurance cover for new cars and two-wheelers compulsory with effect from 1st September, 2018.

As per industry experts, the following would be the new changes with respect to third-party liability insurance cover:

Vehicle Tenure of the long-term motor insurance cover
Cars 3 years
Two-wheelers 5 years


Along with this, IRDAI has allowed the insurers to give comprehensive insurance policies of the entire duration of 3 and 5 years for cars and two-wheelers respectively. Also they can issue a combination of the 1-year comprehensive insurance policy and long-term 3 and 5-year third-party liability covers.

It means, IRDAI has provided general insurance companies in India with 3 options for long-term insurance policies for cars and two-wheelers:

  • Standalone third-party liability cover for 3 and 5 years only
  • Package motor insurance policy (third-party liability cover + comprehensive cover) for 3 and 5 years only
  • Bundled 3/5 years policy (it includes 3/5 third-party liability cover +1 year accident cover)

Though, motor insurance companies in India can offer all the above listed 3 options, it is recommended for the policyholders to opt for the bundled option as it covers the damages of your new vehicle as well along with covering the third-party liability. In case you opt for a standalone third-party insurance policy only, you would save premium cost, however you would end up without insurance coverage for your vehicle, which may turn out to be a big mistake in case there is major accidental damage or theft.

Note: These new long-term motor insurance product constructs will be applicable for new vehicles only.

The 3-year third-party insurance for cars will Rs 5,286 with an engine capacity of less than 1,000 cc, Rs 9,534 (for car engine 1,000-1,500 cc) and Rs 24,305 for cars with engine capacity of 1,500 cc and above.

For two-wheelers, the 5-year third-party insurance will cost Rs 1,045 for vehicles with engine capacity below 75 cc, Rs 3,285 (75-150 cc), Rs 5,453 (150-350 cc) and Rs 13,034 (exceeding 350 cc).

Benefits and drawbacks of long-term motor insurance policies

The major benefit of a long-term motor insurance policy is the reduction in the gap between the number of policyholders and uninsured vehicles. With long-term insurance policies available right from the starting point, it will help in increasing the insurance penetration. As a result, it will play an important role in reducing the number of people plying a vehicle without motor insurance.

Moreover, with long-term motor insurance policies, people can free themselves from the hassles of remembering the policy expiry/renewal due date every year.

However, if we look at the drawback side, the major one is that, it will overburden customers with a hefty premium amount at one go. The entire premium would have to be paid upfront and once the policy has been issued, it can’t be cancelled until it is a case of double insurance or sale or transfer of the insured vehicle.

What should be your next move?

For the sake of your safety and that of others, it is indispensable to purchase a comprehensive motor insurance policy. Further, if the government has to take a step to make it mandatory, it could be because of the rising number of uninsured vehicles running on Indian roads and the risks associated with them.

As a customer, you always an option to deny the insurance offered by the car dealership and thus you can take it on your own from any medium, like online, broker, agent, or even directly from insurers. It is however, recommended to thoroughly check the prices online before purchasing your vehicle insurance to find the right coverage at the best prices.

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