New car owners have to buy these covers from Aug 1

The mandatory long-term comprehensive motor insurance which covers damage to the vehicle and damages (or losses) caused to a third-party person, for three years for cars and five years for two-wheelers, will be scrapped from August 1, 2020.This move will help new vehicle buyers as they will not have to pay a huge premium cost upfront at the time of buying a new vehicle.Pankaj Arora, MD and CEO, Raheja QBE General Insurance said, "Currently, the premium cost of long-term comprehensive motor insurance policy for a mid-segment/compact car is in the range of Rs 40,000-50,000 which comes to around 8-10 per cent of the value of the car."However, for someone who has purchased a long-term motor cover for their new vehicle, they can continue with their long-term policy till it gets expired. After the policy expires, the policyholder will to buy an insurance cover as per the new Insurance Regulatory and Development Authority of India (IRDAI) regulations.Here is a closer look at the details of the long-term motor insurance policies that will be available for customers from August 1, 2020.Why IRDAI is scrapping the long-term comprehensive policy?Sajja Praveen Chowdary, Head- Motor insurance said that IRDAI has mentioned some of the reasons in the note related to the scrapping of long-term policies and these are in line with the feedback received from customers. "New car buyers were forced to buy long term comprehensive policies with a higher premium without making them aware of options, customers didn't have the option to switch even if services were not as per their expectations, the non-uniform structure of No Claim Bonus (NCB), etc. These are very valid concerns of customers and IRDAI has taken the right step in favour of consumers," explained Chowdary.What is a comprehensive long-term motor insurance policy?At present, a consumer can only buy any one of the following two types of long-term insurance policies for new vehicles.1. A long-term bundled comprehensive insurance policy: With effect from September 1, 2018, those who bought new vehicles had the option of buying bundled insurance comprising a three-year third-party insurance policy and a one-year Own Damage (OD) cover for cars. Similarly, a bundled cover with a five-year third-party policy and a one-year OD cover was/is (up to Aug 1) available for two-wheelers.2. A long-term comprehensive insurance policy: A long-term comprehensive policy was available for new cars and two-wheelers bought on or after September 1, 2018. It provided three-year comprehensive covers for cars and five-year comprehensive covers for two-wheelers. The comprehensive cover includes both, vehicle OD policy and third-party insurance. Thus, apart from third-party liability cover, this type of policy covers the damage to the vehicle due to accidents, calamities, fire and theft.Since comprehensive long-term motor insurance policies are going to be scrapped from August 1, the option to buy any one of the above two types of long-term insurance policies will be available only till July 31 for those buying new vehicles.However, Arora said, "While buying a car in the current scenario, you should look at the affordability and choice of insurer since you will be committing for three years in one go." If you buy a vehicle in August or later, you will be able to switch between insurers annually (as the three-year comprehensive policy will be scrapped) as per your choice.Options available to new car buyers from August 1Customers buying new vehicles will likely have to mandatorily buy a three- or five-year long-term third-party motor insurance for cars and two-wheelers, respectively. They also have the option buy a standalone annual OD policy separately from any insurer.Long-term third-party motor insurance: Earlier, the long-term third-party insurance was only available for two-wheelers. However, from September 2019, IRDAI made it mandatory for new car owners and new two-wheeler owners to buy third-party motor insurance for three years and five years, respectively.New vehicle owners will likely have to compulsorily buy long-term third-party insurance while buying a new car or a new two-wheeler. It will cover only damages (or losses) caused to a third-party person, vehicle, or property for three-years for cars and five-years for two-wheelers. It will not cover any damages incurred to the owner's vehicle or theft.Standalone annual OD policy: This policy will be available for both new vehicle owners and existing vehicle owners who purchased their vehicle on or after September 1, 2018. The OD policy can be bought separately from any insurer and will remain optional.Chowdary said that from August, new vehicle owners can buy three- or five-year third-party insurance from one insurer and take OD policy from another insurer as per their choice. Currently, this option doesn't seem to be available from the insurer system standpoint and may be launched in the future. "So, under this option, you may even buy some of the products available under Sandbox regulations. However, you will have to wait till August to buy the 'pay as you use/drive' sandbox regulatory insurance cover," Chowdary said.Rakesh Goyal, Director Probus Insurance, an online insurance broking firm, said that a standalone OD cover allows owners to claim coverage for damages or losses to a vehicle, in case of theft, accidents, or natural calamities. You can buy a standalone one-year OD policy only if you already have a three- or five-year motor third-party cover. "It has been observed that since OD policy is not a mandatory cover, most vehicle owners are not buying the OD policy and may even miss the renewal date of the previous OD policy. This ignorance can lead to an additional burden of vehicle damage costs in case of unforeseen natural calamities or accidents," Goyal said.Clarity on NCB for long term bundled comprehensive policy Firstly, old vehicle owners who have already purchased a bundled cover with a three-year or five-year term (as applicable) for the third-party cover and a one-year term for OD cover can buy one-year OD policy before and after August 1, 2020. Secondly, they can further save on premium cost as now they will be eligible for NCB from the second year onwards, which wasn't clear by the regulator for the long term bundled policies previously.Did you buy your vehicle before September 1, 2018? Here's what you should knowExisting vehicle owners, who purchased the vehicle and insurance before September 1, 2018, can continue with their existing renewal process. The vehicle owners can renew their policy by either buying a one-year comprehensive cover, that includes both OD and third-party covers, or buying only a one-year third-party insurance for their vehicle.For instance, if you have purchased a vehicle with a one-year comprehensive policy on July 1, 2018 or before, and your insurance is up for renewal, in this case you can only buy a one-year comprehensive insurance policy or one-year third-party insurance policy. You cannot switch or buy any of the long-term insurance policies because these policies are only applicable to new vehicle buyers.

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