The new four-wheeler and two-wheeler vehicle insurance policy promulgated by IRDAI (The Insurance Regulatory and Development Authority of India) came into force on August 01, 2020. The current law was framed upon the direction of the Supreme Court of India to the IRDAI to make compulsory long-term third party motor vehicle policy. It mandates for an initial vehicle insurance policy indemnifying the owner for 3 years for four-wheeler motor vehicles and for a period of 5 years for two-wheeler motor vehicles. The earlier laws only insisted for a third-party (TP) liability motor insurance cover for all vehicle owners and the damage policy(OD) was left open to their choice.
Parties To Motor Vehicle Insurance
Insured: Owner of the vehicle or the insured person is the first party to the insurance;
Insurer: The insurance company indemnifying the owner of the vehicle is the second party to the insurance and;
Third-party to the insurance: Persons other than the owner of the vehicle is referred to as the third party to the insurance, i.e. the public. For example, if a motorbike inadvertently hits and injures a pedestrian and himself, the pedestrian is referred to as the third party to the insurance. And if the owner only carries third party insurance he will only be indemnified against the damages caused to third persons, i.e. the owner is not indemnified against the damages caused to himself in the event of an accident.
Comprehensive or standard insurance: This class of insurance indemnifies both the owner and the third party against any damages. Whereof, comprehensive or standard insurance tables a high premium amount in contrast with the third party insurance policies.
Types of Policies
IRDAI(The Insurance Regulatory and Development Authority of India) has approved the following motor vehicle policies;
1.Long term package cover – The package provides a 3-year TP(third party) insurance and 3 year OD(own damage) insurance for four-wheeler motor vehicles and 5-year TP(third party) insurance OD (own damage) insurance for two-wheeler motor vehicles;
2.Bundled Policy : A 3 year TP and 1 year OD policy for four-wheeler motor vehicles and 5 year TP and 1 year OD policy for two-wheelers motor vehicles and;
3.The more common 3 year TP policy for four-wheeler motor vehicles and 5 year TP policy for two-wheeler motor vehicles.
However, on 1st of August, 2020, the IRDAI had interdicted the prospective sale of the long-term comprehensive motor insurance package covering 3 years for four-wheelers vehicles and 5 years for two-wheelers motor vehicle. In the month of June, it further directed the insurance companies to stop the sale of long-term motor vehicle insurance policy to new vehicles sold from 1St of August, 2020. The long term third-party policies still remain intact but from 1st August the vehicle purchasers are compelled to make an upfront premium payment for 5 years for two-wheelers vehicles and for 3 years four-wheelers motor vehicles. In addition, the insurers can only sell the long-term policies in bundle form wherein the package would have 3 years TP and 1 year OD policy for four-wheelers vehicles and 5 years TP and 1 year OD policy for two-wheelers vehicles.
For eg: A person purchasing a vehicle after August 1 will be compelled to buy a long term third party liability insurance i.e. three-year and five-year for four-wheelers vehicles two-wheelers vehicles respectively and the third-Party insurance policy is same for all insurers and the packages are similar.
The insurance holder can indemnify his own vehicle from damages by either purchasing a package inclusive of both long-term third-party liability policy and a one-year own damage cover which is referred as the bundled policy or two policies, i.e. TP and OD policies. The two policies cumulatively would cover the damages of the owner as well as the third party.
A no-claim bonus will be accrued annually on the policyholder if he/she has not gone beyond the prescribed claim limit and the would-be deducted at the time of policy renewal.
Can The Policy Holder Close the Long Term Vehicle Insurance Policy?
The long term vehicle insurance policy can be closed at the instance of the policyholder at any point of time and portability of insurance policy is also a viable and feasible alternative subject to the premium quoted by the other insurance company providers.
Benefits of The New Insurance Law
The New Vehicle Insurance Law mainly renders two benefits;
Existing motor vehicles owners are protected against a higher upfront premium for the insurance policy;
The policyholders are vested with the liberty to change their insurance provider after one year, however, the new car owners will have to take a three-year third-party (TP) cover while in the case of two-wheeler vehicles it will be five-years.
Vehicle dealerships are deprived of persuading its customers to buy long-term OD insurance cover (which has a higher premium than standard policy).
In short, the new motor vehicle insurance law glitters as a long step towards ensuring the compliance of motor vehicle insurance and at the same time, it tends to emancipate the policyholders from clutches of long term insurance policies which does not yield proportional benefits to them.