Long term motor policies: what you should advise your clients

long term motor insurance plans

The Insurance Regulatory and Development Authority of India (IRDAI) continuously makes changes in the rules and regulations governing insurance policies. Various structural changes in insurance policies are proposed by the IRDAI from time to time. In recent times IRDAI has made some prominent changes in motor insurance plans for new cars and bikes bought on or after 1st September 2018. These changes have resulted in a major impact on the premiums of these plans.


Many individuals are either unaware of these changes on new vehicles or are confused about what these changes would mean for them. It is, therefore, your duty to educate your clients about IRDA’s recent changes and advise them on buying or renewing their motor insurance policies. Before you understand how you should advise your clients, let’s first understand the new change prescribed by the IRDAI.


The new IRDAI rule


As per the new rule passed by the IRDAI and effective from 1st September 2018 –

  • All two wheeler insurance policies bought for two-wheelers purchased on or after 1st September 2018 would have a mandatory third-party liability coverage for 5 years
  • All car insurance policies bought for cars purchased on or after 1st September 2018 would have a mandatory third-party liability coverage for 3 years


Impact of the rule on motor insurance policies


The main impact of the new rule is on the premium of new motor insurance policies. The upfront cost of both bike and car insurance plans would increase as your customers would have to pay a higher third-party premium for longer coverage durations. Moreover, personal accident coverage in both car and bike insurance policies would also be increased to INR 15 lakhs with an annual premium of INR 750 (you can also check out this article by The Economic Times for further reference). This increase also brings about an increase in the premium payable for the cover. Both these premium increments on policies affected on new cars and bikes would cause a heavy financial strain on your clients’ pockets.


Coverage options for your clients


Though IRDA has mandated long-term coverage for car and bike insurance policies for policies bought on or after 1st September 2018, the cover has been mandated only for third party liability. Own damage cover has not been made mandatory to be offered for a long term. As such, your customers have three options for buying or renewing their motor insurance policies –


  1. They can buy only third-party coverage for their vehicles
  2. They can buy a bundled coverage consisting of long-term third-party liability and one-year own damage cover
  3. They can buy a long-term comprehensive policy with both third party and own damage cover offered for a long-term


What you should advise your clients


Given the three options which your clients have, here’s what you can advise your clients to do–


  • If affordability is a concern, only a long-term third-party plan can be bought. However, the policy would not cover damages to your customers’ vehicles. This option is suitable if your client has a very old vehicle or uses the vehicle sparingly.
  • A bundled coverage is the best option for your clients. It would give them two benefits. One, the policy would fulfill IRDA’s new rule and offer a long-term third party cover. Two, own damage cover would be only for one year thus limiting the premium increase. Since the cover is only for third-party liability, the premium would be affordable and your client can enjoy comprehensive coverage
  • If affordability is not an issue, going for a long-term comprehensive policy is better as your client would not have to renew their own damage cover annually. Moreover, long-term policies might also earn your clients premium discounts.


Read to know how this IRDAI’s new motor insurance rule is going to affect your customer’s premium outgoes.


The bottom line


Since IRDAI has mandated long-term coverage for third party liability on new cars and bikes bought on or after 1st September 2018, your clients cannot escape the incidence of higher premium outgoes. You should, therefore, advise your clients on the best course of action depending on their suitability. There are three instances which you should match to your customer’s requirements and financial suitability and then suggest the best policy. If you do so, the policy would be affordable and also fulfill your customers’ motor insurance needs. Wouldn’t you want that?



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