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Why is long term third party motor insurance mandatory?

By Finserv MARKETS - Jul 31,2019
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Reasons why third party motor insurance mandatory?

In 2018, India had fewer road accidents, but more fatal ones as compared to 2017. One of the main factors attributed to these fatal accidents was over speeding. According to data released by the Ministry of Road Transport and Highways, there were 413 road accident-related deaths every day in India in 2016, which meant 17 deaths every hour. Road accident injuries are one of the top four leading causes of deaths among people between 15 and 49 years of age.

To make matters worse, almost 60 percent of the vehicles in India today are uninsured and a majority of them are two-wheelers. The motor insurance policy that the driver or owner holds will most probably not include a third party liability cover, although it is mandated by law.

What is long term third party motor insurance?

A third party motor insurance usually covers any vehicular or bodily damage caused to the third party during an accident. As per the Motor Vehicles Act, 1988, it is mandatory to have a third party liability insurance cover on your vehicle like a third party liability only policy available on Finserv MARKETS. On Finserv MARKETS, you can also purchase a comprehensive motor insurance package like two wheeler insurance plans and Car insurance plans that comprises of an in-built third party liability cover as well as an own damage cover, along with a variety of add-on covers. You can also check the premiums for car insurance plans available on Finserv MARKETS by using the car insurance calculator. The tool not only provides a quote but also allows you to compare quotes offered by insurers in India. Based on the results, you can then choose a car insurance plan that is affordable and fulfils your needs.

Prior to Sep 2018, third-party liability insurance was offered either as a stand-alone policy or bundled with a comprehensive motor insurance package for only one year. Insurers agree that most customers are keen to buy a motor insurance policy that protects them or their vehicle rather than the third party and their challenge was to convince these customers to get their policies renewed after the first year.

However, last year, the Supreme Court has mandated all the general insurance companies in India to start issuing long term third-party motor insurance, i.e., a three-year third-party insurance cover for new cars and five-year third party insurance for two-wheelers.

The IRDAI was directed to implement the decision on policies sold from Sep 1, 2018.

Vehicle Type and Engine Capacity Annual third party premium before (Rs.) Long term third party single premium with effect from June 16, 2019* (Rs.)
Upto 1000 cc 1850 5286
Above 1000 cc and upto 1500 cc 2863 9534
Above 1500 cc 7890 24305
Upto 75 cc 427 1045
Above 75 cc and upto 150 cc 720 3285
Above 150 cc and up to 350cc 985 5453
Above 350 cc 2323 13034

*Three years for cars and five years for two-wheelers. Source: IRDAI.

What Are The Benefits Of Long-Term Third Party Motor Insurance?

As with any regulatory changes, this move toward long term third party motor insurance offers its own share of benefits.

  • It will offer price stability and convenience as customers need not renew their policy every year and will be insulated from yearly hikes in third-party premiums.
  • It shall minimize the presence of non-insured vehicles, especially two-wheelers since the third party insurance is now mandated by law.
  • The third-party insurance prices are revised every year by IRDAI based on claims reported in the previous year. With high claims incidence, it is always financially beneficial for the customers to lock the premiums for three or five years.
  • Having a longer-term policy can save the vehicle owner from high liabilities and long-drawn court cases. The liabilities are taken care of by the insurance companies at least for three to five years.
  • Higher premium collection on a motor insurance policy will encourage insurers to allocate higher reserves for claims settlement.

The Road Ahead

Most insurance players argue that the move towards long term third party insurance was necessary for the two-wheeler segment that accounts for a large percentage of third party insurance renewal evasions. On the other hand, 90 percent of the motor insurance was usually renewed in the private car segment even before this regulatory move, and that the higher costs would mean little or no benefits to these policyholders. Also, nitty-gritty like premiums, no claim bonus, and riders for own damage component will have to be fine-tuned by the insurers to bring some uniformity across the board.

Despite many reservations and higher premiums, you have no choice but to purchase a long term third party motor insurance for your vehicle since it is now mandated by law. All said and done, it is the buyer who’ll rake in more benefits. So, get one before it’s very late.

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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522