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Changes In Motor Insurance From 1 August

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From 1 August 2020, as per IRDAI's (Insurance Regulatory and Development Authority of India) mandate, long term motor insurance packages that cover both third-party damage and own damages, for 3 years on cars and 5 years for two-wheelers, will be withdrawn.

If you plan on purchasing a vehicle after 1 August 2020, here is some background on the changes introduced and how it can help you make a calculated decision.

What changes from 1 August?
 

What changes from 1 August?

The change from 1 August 2020 it that the long term policies will now only be offered on third party liability.

You must be aware that holding a third-party liability motor insurance is mandatory for all vehicle owners in India, however, an own damage policy is not compulsory.

However, since a low percentage of vehicle owners actually follow the rule of holding third-party liability insurance, the Supreme Court in 2018 had ordered that all new vehicles be sold with long-term insurance policy that provides a 3-year cover for cars and 5-year cover for two-wheeler.

IRDAI then asked insurers to also offer these long term policies as packages to include own damage as well. The combined policy to cover own vehicle as well as damage to another vehicle for 3/5 years will be withdrawn, come 1 August.

Why was the change made?

Why was the change made?

The long term policies were introduced to compel more people to have valid third-party liability insurance, as mentioned before. This would ensure that the compensation system of insurance companies would work smoothly by victims of an accident being compensated in a timely manner.

Combining the two covers (third party and own damage) into one policy raised the cost of premium. The decision to withdraw these was made by IRDAI to lower the large upfront premium costs to be incurred by vehicle buyers at the time of purchase of a new vehicle.

Due to the mandate to purchase motor vehicle insurance at the time of buying a new vehicle, auto dealers were in a good position to convince buyers to buy the 'combo' or 'bundled' long term policy. OEMs (original equipment manufacturers) criticised the move saying that high upfront costs were hurting sales of motor vehicles.

In its order, IRDAI cited concerns including the challenge of actuarial pricing, affordability, and possibility of forced selling as the reason to withdraw these bundled policies.

If you plan on buying a vehicle after 1 August 2020
 

If you plan on buying a vehicle after 1 August 2020

The long term policies were introduced to compel more people to have valid third-party liability insurance, as mentioned before. This would ensure that the compensation system of insurance companies would work smoothly by victims of an accident being compensated in a timely manner.

Combining the two covers (third party and own damage) into one policy raised the cost of premium. The decision to withdraw these was made by IRDAI to lower the large upfront premium costs to be incurred by vehicle buyers at the time of purchase of a new vehicle.

Due to the mandate to purchase motor vehicle insurance at the time of buying a new vehicle, auto dealers were in a good position to convince buyers to buy the 'combo' or 'bundled' long term policy. OEMs (original equipment manufacturers) criticised the move saying that high upfront costs were hurting sales of motor vehicles.

In its order, IRDAI cited concerns including the challenge of actuarial pricing, affordability, and possibility of forced selling as the reason to withdraw these bundled policies.

Read more about: motor insurance vehicle car
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