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Business News/ Money / Calculators/  Soon, you can get 3-year motor insurance for your 2-wheeler
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Soon, you can get 3-year motor insurance for your 2-wheeler

A long-term policy not only offers convenience but also cost efficiency

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If you own a bike or a scooter, there is some good news for you. You will now be able to buy insurance for your vehicle for three years at one go. The Insurance Regulatory and Development Authority (Irda) has allowed insurers to file long-term third-party insurance cover for a term of three years. The idea behind a long-term cover is to encourage two-wheeler owners to buy the mandatory third-party insurance cover. Industry data suggests that more than 50% of the two-wheeler owners do not renew their insurance cover. This is largely because the owners don’t want to get into the hassle of renewing the policy ever year. So, by offering long-term policies it’s expected that owners will be attracted towards renewing their policies. A long-term policy not only offers convenience but also cost efficiency.

What is third-party insurance?

Motor third-party insurance is mandatory for all plying vehicles; this means you need this cover to take your vehicle on the road. The insurance here covers you in case your vehicle causes damage to life or property of a third-party. The cover can be invoked only in case of an accident, and not if the act is deliberate or with a criminal intent. If the accident causes bodily injury or loss of life, the third-party cover is unlimited.

The premium for third-party cover is decided by Irda, which has started pegging the pricing on parameters such as average claims amounts, frequency of claims, expenses involved in servicing the motor third-party business and cost of inflation index for the year of review. This is being done to bring some parity between third-party premium rates and huge loss ratios. This is why the premiums of third-party cover has been increasing every year. For two-wheelers with a capacity of over 75CC and below 350CC, the premium has increased about 40% since 2011.

But if you buy a three-year term policy, you can avoid the annual hike as the premium that you pay in one shot would be equal to the annual premium, as applicable in the current year, multiplied by three. Once paid, the insurer can’t increase or decrease the premium any time during the three years. Also, in case of a total loss, such as complete damage, the insurer will have to reimburse the amount for the remaining years to you.

Will three-year cover extend to comprehensive policy?

For private vehicle owners, insurers usually give a comprehensive policy. This along with third-party cover includes own damage cover. Keeping this in mind, Irda has allowed insurers to file a three-year comprehensive policy. But unlike the third-party premium, where pricing is fixed, the premium for own damage is decided by the insurer and the pricing also factors in depreciation of the vehicle every year. This means that insurers may first start off with long-term third-party covers and then roll out comprehensive covers. Industry expects the long term-cover concept to include four-wheelers, especially private vehicles, as well.

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Published: 19 Aug 2014, 05:54 PM IST
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