Benefits of a long-term motor insurance policy

How is long-term motor insurance policy beneficial for vehicle owners? Read on to find out.

Benefits of a long-term motor insurance policy

Revised rules and amendments are a part of progress in developing countries. Changes are made, tried, and tested. Traffic rules are an area that has undergone changes over the years. One such change we have recently seen is a new law making it mandatory for all vehicles to have long-term motor insurance.

The Supreme Court of India has enforced this law with effect from September 2018. So far, third-party motor insurance was available for a one-year tenure. But now, all new vehicle owners will have to adhere to the new rules. For two-wheeler owners it will be a mandatory third-party cover for five years and for four-wheeler owners it will be three years.

The two new changes are described in greater detail below.

1. Compulsory increase in duration

The insurance regulator (IRDAI) has circulated this mandatory long-term motor insurance to vehicle sellers. Both types of motor insurance, for two-wheelers and four-wheelers, are affected. From now, bike owners must have third-party cover for five years and car owners for three years. 

The main reason behind this law enforcement is to provide compensation to accident victims. Many vehicle owners don’t consider third-party liability motor insurance renewal after a certain period. In such cases, road accident victims are left high and dry without any compensation. 

This will be a way of providing compensation to on-road accident victims who suffer death or injury. 

The policyholder or the insurer is not allowed to cancel third-party cover during the term. Only in cases of double insurance or when the vehicle is not in use any more or sold can this be done.

Related: How to save money while renewing motor insurance 

2. Personal accident cover

The regulator has also directed an increase in compulsory personal accident sum insured cover for the owner-driver to Rs 15 lakh from the current cover of Rs 1 lakh (two-wheelers) and Rs 2 lakh (four-wheelers). Correspondingly, the premium has been increased to Rs 750 from Rs 50 (two-wheelers) and Rs 100 (four-wheelers).

Features and benefits

▸ Stable premium

Premiums for third-party insurance have been rising every year. Typically, IRDAI increases third-party liability premium by 20% each year. However, If one purchases long-term motor insurance, premiums cannot change within the mandatory three/five years of the policy.

▸ Higher no-claim bonus

No-claim bonus (NCB) is a discount provided to policyholders for the subsequent year if they do not make a claim during the previous year. Long-term motor insurance policies have an advantage over short-term policies in that they offer a higher NCB within a shorter duration.

Presently, policyholders can get 20%, 25%, 35%, 45% and 50% of the premium for every subsequent year in which claims haven't been filed.

The new draft reduces this to four slabs of   20%, 30%, 40% and 50%. Thus a policyholder would receive 50% NCB for filing no claims within four years as compared to five years as is the case presently.

▸ Better discounts

Policyholders can receive discounts and incentives on long-term two-wheeler motor insurance. In motor insurance, while third-party liability insurance is mandatory, own damage insurance has been optional.

Related: Types of motor insurance policies you should know about 

▸ Hassle-free renewal

Renewing policies every three/five years is more convenient than having to remember it on a yearly basis. This is all the truer when one has two or more vehicles. If a policy lapses, one has to jump through many administrative hoops to have it renewed. And if an accident occurs post the motor insurance renewal date, the policyholder cannot make a claim at all. The insurer might even ask to have the vehicle inspected before renewing the policy. Chances of such complications are far lower when renewals are less frequent.

▸ The cost factor

The cost to the vehicle owner definitely goes up with a long-term third-party policy. However, they also get a mandatory personal accident cover. Motor insurance calculators would offer better clarity on this. Since, instead of paying annual premiums, the entire motor insurance amount has to be paid as a lump sum in the initial year, the changes are expected to hike the on-road cost of newly purchased vehicles.

Last words

As a futuristic approach, long-term motor insurance cover is expected to change the dynamics of insurance claims and the mentality of people. Hopefully, owners and drivers will understand the entire purpose of this change and embrace it. Take a look at these 6 Motor Insurance terms you must know before you claim your motor insurance.


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