- Date : 10/08/2020
- Read: 3 mins
Buyers will no longer have to purchase long-term insurance packages for two-wheelers and four-wheelers for five years and three years respectively, as mandated in 2018
IRDAI, the insurance regulator of India, recently announced to withdraw its previously mandated long-term package policies, that included third party and own damage cover, for two-wheelers and four-wheelers. It has asked insurance providers to discontinue such packages from August 1. It has further asked insurers to offer standalone annual own damage covers from September 1. With this move, the cost of buying a car or bike will come down.
“Effective September 01, the insurers shall make available standalone annual Own Damage covers (including stand-alone OD cover for fire and/ or theft if opted by the policyholder), for cars and two-wheelers, both new and old,” said the circular issued by IRDAI.
What was the previous ruling?
In September 2018, IRDAI mandated customers to buy long-term comprehensive cover, which combined own damage and third party, for a period of three years for cars and five years for two wheelers. With this, the on-road price of a vehicle became more expensive as buyers had to shell out insurance for multiple years at one go.
What does the new move of withdrawing long-term package policies mean?
The new ruling says that while buyers still have to purchase third party cover for three and five years for cars and bikes respectively, they only have to buy own damage cover for one year at a time. They will have to renew this own damage cover every year. By removing the mandate of buying own damage cover for multiple years at a time, IRDAI has reduced the burden on customers.
The regulator has said the rationale behind scrapping long-term policy packages is to ensure affordability, reduce potential mis-selling and enable customers to switch insurers if they wanted. The fact that there is no uniform No Claim Bonus (NBC) is also a factor.
How does it affect existing policyholders?
While new long-term policy packages will no longer be available from August 1, there is no reason for existing policyholders to stress as their cover will continue as per the terms and conditions until the policy expires. At the time of renewal, they will have to renew their third party cover for three and five years for cars and bikes respectively. Additionally, they can get a comprehensive policy, which includes their own damage, for a year or only renew their own damage component for one year if they wish.
The regulator also said that after September 1 policyholders are free to either renew own damage cover from the same insurer or get it from a different insurer that suits their needs better. Look at these different types of motor insurance policies you should know about.