11 January

New vehicle owners have to buy long term premiums??

Category: Moter insurance

From September 1st, the supreme court ruling of July 20th has come into effect and it clearly mandates the purchase of long term policy for new vehicle buyers, spanning over three to five years. The order has come in the backdrop of lower penetration, although insurance is mandatory for all road-worthy vehicles. 

This would have two kinds of effects, 1st, would be a proportionate rise in initial outgo on premium payment, 2nd, you will be freed from the annual hassle of paying your premiums.

The initial insurance cover on a new private car exceeding 1500 cc will be at least Rs 24,305, up from the base of Rs 7,890 now. For bikes with an engine capacity beyond 350 cc, the buyer must pay Rs 13,024 against Rs 2,323 currently. Insurance premiums can vary across models. 

As vehicles age and deteriorate, people often tend to skip their premiums or buy policies that are cheaper but inappropriate to cover the risk. This policy measure will increase penetration of the insurance sector and bring more vehicles under its ambit, the extent of insurance cover on third-party vehicles will be bigger and better.

According to a 2015 report by the government, there are about 1374 road accidents taking place in India everyday, with a fatality of 400.

With no legal time limit on insurance claims, the claims can be filed at the place of accident or in the area of residence of 1st party or 3rd party.

In case of fault liability claims, the sum insured is unlimited, the insurers too have been asked to apply their own underwriting principles by the Regulator along with distribution of long term packages from September 1st with an option to offer the long term package cover-own damage & third party- or a combination of the two i.e. 3 year longterm 3rd party cover & 1 year self damage.

The premium for the entire 3 year term will be collected at the time of sale of vehicle itself, eventhough the premium will be recognised on an yearly basis, for each year, the total premium divided by the coverage duration would be treated as gross written premium during that year, while the rest of the funds would be considered ‘premium deposit’ or ‘advance premium’. 
The 3rd party cover cannot be cancelled by either the insurer or the insured during the term except in case of double insurance, or, when the vehicle lies unused or is sold-off/transferred. Also, the no-claim bonus would be applicable on the own-damage component only when the policy term has been completed. The regulator will separately prescribe the commission payable for long-term cover and the payment of commission in a year will be only on the gross written premium recognized for the year.