Buying a car? You now have to buy long-term insurance and here’s what you should know about it

A Supreme Court’s order will ensure long-term cover for vehicles, thus saving owners from getting a yearly renewal, and reduce the number of non-insured vehicles plying on the road.

Written by Adhil Shetty | New Delhi | Updated: September 11, 2018 6:40:54 pm
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The Supreme Court has now made it mandatory for all general insurers to provide long-term third-party insurance for new vehicles sold on or after September 1. So if you buy a four wheeler, you will have to pay motor insurance premium representing third-party liability upfront for three years. For two-wheelers, the premium liability for five years will have to be paid upfront.

How is this move going to help?

Vehicles are not permitted to ply on roads in India without third-party insurance. Third-party insurance provides cover for damages caused to property or vehicle of a third party due to your vehicle.

The Supreme Court’s order will ensure long-term cover for vehicles, thus saving owners from getting a yearly renewal, and reduce the number of non-insured vehicles plying on the road. However, the insurance is recognized on a yearly basis.

Impact on motor insurance premium

Vehicle insurance has two components: third party and own damage. While there is no change in the premium for the own damage component, premium for third-party component has now been fixed by the insurance regulator, which will remain the same for three to five years. The no claim bonus (NCB) benefit on your insurance is against the own damage component, so there’s no change in that. The implications of this change will be clearer in the coming days, once insurers announce their policy structure.

The initial premium will be higher for new vehicle buyers, as the premium payment will be for multiple years. However, the premium cost for third party insurance would be cheaper as the insurance regulator will be fixing the rates on an annual basis.
Considering third-party insurance doesn’t cover damage you cause, for a more comprehensive cover choose comprehensive insurance. Comprehensive insurance includes third-party insurance, provides cover against not just for accidents but also against theft, burglary, fire, riots, natural calamities etc.

The premium of this policy will depend on the model of the car, purpose for which the vehicle is bought, the safety devices installed and the insurance zone.

Finally

The new rule will be applicable only to people who purchase vehicles on or after September 1, 2018. For those who have purchased vehicles before September 1, you can continue to renew your policy on an annual basis.

While you may still debate the need for this move, it will surely increase the number of insured vehicles on the road. Plus it has been noted in the past that the third-party insurance cost has only increased every year. Now, you will be paying an upfront the premium for multiple years, so you may actually be saving some money.

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