Purchasing a new car or a two-wheeler will get cheaper as the obligatory long-term insurance package plans will be withdrawn from August 1.
The new long-term motor insurance packages that cover both own damages (OD) and third-party (TP) damages, will be discontinued. The move will effectively decrease on-road prices of new four and two-wheelers in the country.
According to the Insurance Regulatory Authority of India (IRDAI), this new rule will be applicable for those vehicles that will be purchased post-August 1, 2020.
Earlier, it was mandatory for a four-wheeler or two-wheeler owner to have third party insurance (three years for cars, and five years for scooter/bikes). An individual could also buy long-term comprehensive insurance, comprising OD and TP for a longer period.
But now with the enforcement of this new rule, customers will not be required to pay for three or five years of long-term insurance in a combined format.
However, the new rule requires a vehicle owner to have at least one-year mandatory third-party insurance. Additionally, customers can also opt for a one-year OD cover.
Besides, the new order also states that customers will not necessarily have to stick to a single insurance provider for a longer period of time, but they can switch to other insurers as per their comfort.
The IRDAI had earlier said that the distribution of long-term third-party policies was challenging, as was unaffordable for vehicle owners. The possibility of forced selling or being linked to loans was high and that policyholders were saddled with a long term product without flexibility.
In 2018, the Supreme Court made it mandatory for vehicle owners to have long-term policies of five years for two-wheelers and three years for four-wheelers. Insurance companies then started offering products on a long-term basis to customers.
This included an option package of OD and TP policies on a long-term basis. However, customers had also started to complain that since OD prices were not regulated by IRDAI, pricing was high.