Insurers have to offer 5-year third-party cover for new bikes purchased after Sep 1

Editor@Throttle|Updated: August 29, 2018 14:27

Following a Supreme Court order, the insurance regulator has asked all general insurance companies to offer long-term third-party motor covers to policyholders.  Through a circular issued on August 28, the Insurance Regulatory and Development Authority of India (Irdai) has directed insurers to offer five-year policies for new two-wheelers. This will be effective from September 1, 2018. 

Irdai, in its circular states, that this is in line with The Supreme Court's order, dated July 20, 2018, where it had said, "We make it clear that the third party insurance cover for new cars should mandatorily be for a period of three years and for two-wheelers, it should mandatorily be for a period of five years. This may be taken and treated as a separate product. The decision should be implemented from 1st September, 2018 on the policies sold." Currently, motor insurance premiums have to be paid on policies only for a year. However, some insurers were offering multi-year policies also. Now the regulator has asked 3- and 5-year third-party covers to be issued mandatorily for cars and two-wheelers respectively. 

Long Term Motor Third Party Premium for the policies sold during the period September 1, 2018 to  March 31, 2019 for Two wheelers

Vehicle categoryLong Term Premium Rates for 5 yr Motor TP sold during period September 1, 2018 to March 31, 2019 in Rs. 
Not exceeding 75cc1045
Exceeding 75 cc but not exceeding 150 cc3285
Exceeding 150 cc but not exceeding 350 cc5453
Exceeding 350 cc13034


The premium has to be collected for the entire term (three years or five years as the case may be) at the time of sale of insurance but would be recognised on a yearly basis. According to IRDAI, "It shall be recognised for each year as l/n of total premium as Gross Written Premium during that year where 'n' is the term of the policy. Thus, the premium for the year shall only be recognised as income and the remaining premium shall be treated as 'Premium Deposit' or 'Advance Premium'."



The new options

Currently, as far as motor own damage insurance is concerned, Package Policies (i.e. comprehensive covers) are available wherein two components are covered- Motor Third Party Liability and Motor Own Damage cover. According to the Irdai circular, after the introduction of the long-term motor third-party insurance for new cars and two-wheelers, an insured may be given the following two options: 

1. Long-term package cover offering both motor third-party insurance and own damage insurance for three years or five years as the case may be. 

2. A bundled cover with a three-year or five-year term (as applicable) for the third party component and a one-year term for the own damage. 

With regards to the pricing of the one-year own damage cover of the bundled product, it will remain same as it is now. 

Article Source : EconomicTimes