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IRDA Rules for 3 Years Third Party Liability Car Insurance Cover

By Finserv MARKETS - Feb 4,2019
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IRDA's rule for three year (third party liability) car insurance policy

On September 1, 2019, the on-road pricing calculations for brand new cars underwent a drastic change. The Insurance Regulatory and Development Authority of India (IRDA) has made it mandatory for car manufacturers to bundle a minimum three-year third-party insurance plan with the purchase of a new car. Although the long term premium payments will raise the initial cost of buying a new car, you can save yourself from the trouble of yearly renewals in the long run. Therefore, whether you buy car insurance online or through your car dealer, you will need to pay up approximately three times more than you paid before.

Insurance Coverage for Maximum Period

As vehicles get older and its value starts decreasing, many owners either tend to skip annual renewals or buy policies that do not cover the risks entirely. Hence, the primary objective of the IRDAI is to ensure that more vehicles are covered under insurance for the maximum period. According to road accident survey conducted by the government, the daily accident count in India is 1,374 which results in around 400 road fatalities daily. In terms of claims, there will be no legal time limit for third-party insurance. Cases can be filed either in the area where the claimant resides or the area where the accident occurred. Also, the sum insured will be unlimited in case of fault liability claims.

How It Affects the Insurance Providers?

The IRDAI has asked insurers to apply their own underwriting principles and start distributing long-term car insurance plans by September 1st 2019. The insurers have the choice to either offer a long-term package cover which includes both own-damage and third-party coverage or a combination of both long-term third-party and one year of own vehicle damage coverage. Furthermore, as per the new IRDAI regulations, insurance providers need to collect the premium for the entire term i.e. three years for new cars, at the time of sale.

Read in detail about what is third party insurance to understand this concept fully.

Important things to remember:-

Although car insurance will be long term – for a duration of 3 years, the premium will be recognised on a yearly basis. The total premium divided by the coverage duration would be treated as a gross written premium during that year, while the rest of the funds will be considered ‘premium deposit’ or ‘advance premium’.

Neither the insurer nor the policyholder has the power to cancel the third-party cover during the term, except in the case of double insurance or if the insured vehicle is sold or transferred.

Another important thing to keep in mind is that the no claim bonus will only be applicable to the own damage insurance component.

As per the new rules by IRDA, the initial insurance cover of a new car exceeding 1500 cc will be at least Rs. 24,305. On the other hand, the cost would have been around Rs. 7,890 before the long term car insurance plan was made mandatory. These numbers clearly demonstrate how many times a new car buyer will need to pay in comparison to present day third party insurance value.

Hence if you are planning to buy a new car soon, you will need to brace yourself to pay a lot more upfront for the car insurance policy from now on.

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522