New rules of third-party insurance: Should you buy package or bundled policy now?
If you buy a car after September 1, a portion of your motor insurance premium representing the third-party (TP) liability has to be paid upfront for three years. This means that new car owners will have to shell out more for their motor insurance policies in the first year. For new two-wheelers, the premium for third-party liability of five years will have to be paid upfront.
Following a Supreme Court order, the Insurance Regulatory and Development Authority of India (Irdai) has asked all general insurance companies to offer long-term third-party motor covers to policyholders.
Among the two types of car insurance in India, the third-party (TP) car cover serves to protect the insured from claims arising from a third party, when the insured person's vehicle is at fault. This cover will pay for any fiscal liability that arises out of the accident. As per the rules, no vehicle can run on the road without TP insurance. Based on the capacity of the car or two-wheeler, the third-part premium rate is fixed and notified by Irdai at the start of a financial year. Elsewhere, an Own Damage (OD) or a Comprehensive Policy covers loss or damage to the vehicle insured in addition to all the covers provided by a third-party policy.
For new buyers, there will be three options to choose from - Buy a long-term package, a bundled package, or stick to a standalone TP cover. Here is a closer look at each of these options:
Option 1. Long-Term Package Cover: (TP=3 Years Plus OD=3 Years)
Such a cover will offer both motor third-party insurance and own damage insurance for three years or five years, as the case may be.
Watchouts - For those who wish to pay in one-go, this is a suitable option. However, switching to another insurer on account of lower own-damage premium in the next year is not possible. Further, outflow in the first year rises. "Cost upfront is too high. And since most customers are forced by the car seller to take insurance from them only, they will end up paying a lot more for the vehicle," says Tarun Mathur, Chief Business Officer, General Insurance, Policybazaar.com. If you do not want to buy this variant of the insurance cover and are being forced by the car salesman to get one, do know that you are under no compulsion to do so.
Option 2. Bundled Cover: (TP=3 Years Plus OD=1 Years)
Such a cover will offer a three-year or five-year term (as applicable) for the third-party component and a one-year term for Own Damage.
Watchouts - Those who want to keep the premium outflow controlled should go for this option.
Of the above two options, here is what Vijay Sinha, CEO, DHFL General Insurance suggests, "Customers purchasing a car using the financing option need to keep in mind that the interest charged on vehicle finance is in the range of 11-15 percent p.a. While insurance companies do provide credit for interest in their long-term pricing, it is usually in the range of 6-8 percent p.a. Accordingly, there is an additional burden on the customer of financing the 3 year insurance upfront, which over a 3 year policy can work out to be in excess of 10 percent of the premium. This impact can be mitigated by deferring the purchase of future years own damage cover which means going for Option 2."
Option 3. Standalone Third-Party Only cover: (TP=3 Years without OD)
This option always existed for anyone buying motor insurance. The only change is that now one has to purchase TP for 3 or 5 years, , as the case may be.
Watchouts - "In case of standalone TP Only policy, while it saves premium, you will end up without insurance cover for your vehicle damage which may turn out to be a big loss in case of major accidental damage or theft of the vehicle," says Animesh Das, Head of Product Strategy, ACKO General Insurance.
What you should do
Many individuals buy insurance at the time of purchasing a car or bike from the dealers itself. And with the introduction of multi-year third-party covers, it becomes all the more important that you make an informed decision. "Customers should compare various insurers and plan options before opting for one since the cost that they pay upfront now will be higher compared to what it was earlier. They should compare and buy the best option and should be wary of people who misrepresent that cashless, warranty etc will not be available if they don't buy insurance from them," informs Mathur.
Following a Supreme Court order, the Insurance Regulatory and Development Authority of India (Irdai) has asked all general insurance companies to offer long-term third-party motor covers to policyholders.
Among the two types of car insurance in India, the third-party (TP) car cover serves to protect the insured from claims arising from a third party, when the insured person's vehicle is at fault. This cover will pay for any fiscal liability that arises out of the accident. As per the rules, no vehicle can run on the road without TP insurance. Based on the capacity of the car or two-wheeler, the third-part premium rate is fixed and notified by Irdai at the start of a financial year. Elsewhere, an Own Damage (OD) or a Comprehensive Policy covers loss or damage to the vehicle insured in addition to all the covers provided by a third-party policy.
For new buyers, there will be three options to choose from - Buy a long-term package, a bundled package, or stick to a standalone TP cover. Here is a closer look at each of these options:
Option 1. Long-Term Package Cover: (TP=3 Years Plus OD=3 Years)
Such a cover will offer both motor third-party insurance and own damage insurance for three years or five years, as the case may be.
Watchouts - For those who wish to pay in one-go, this is a suitable option. However, switching to another insurer on account of lower own-damage premium in the next year is not possible. Further, outflow in the first year rises. "Cost upfront is too high. And since most customers are forced by the car seller to take insurance from them only, they will end up paying a lot more for the vehicle," says Tarun Mathur, Chief Business Officer, General Insurance, Policybazaar.com. If you do not want to buy this variant of the insurance cover and are being forced by the car salesman to get one, do know that you are under no compulsion to do so.
Option 2. Bundled Cover: (TP=3 Years Plus OD=1 Years)
Such a cover will offer a three-year or five-year term (as applicable) for the third-party component and a one-year term for Own Damage.
Watchouts - Those who want to keep the premium outflow controlled should go for this option.
Of the above two options, here is what Vijay Sinha, CEO, DHFL General Insurance suggests, "Customers purchasing a car using the financing option need to keep in mind that the interest charged on vehicle finance is in the range of 11-15 percent p.a. While insurance companies do provide credit for interest in their long-term pricing, it is usually in the range of 6-8 percent p.a. Accordingly, there is an additional burden on the customer of financing the 3 year insurance upfront, which over a 3 year policy can work out to be in excess of 10 percent of the premium. This impact can be mitigated by deferring the purchase of future years own damage cover which means going for Option 2."
Option 3. Standalone Third-Party Only cover: (TP=3 Years without OD)
This option always existed for anyone buying motor insurance. The only change is that now one has to purchase TP for 3 or 5 years, , as the case may be.
Watchouts - "In case of standalone TP Only policy, while it saves premium, you will end up without insurance cover for your vehicle damage which may turn out to be a big loss in case of major accidental damage or theft of the vehicle," says Animesh Das, Head of Product Strategy, ACKO General Insurance.
What you should do
Many individuals buy insurance at the time of purchasing a car or bike from the dealers itself. And with the introduction of multi-year third-party covers, it becomes all the more important that you make an informed decision. "Customers should compare various insurers and plan options before opting for one since the cost that they pay upfront now will be higher compared to what it was earlier. They should compare and buy the best option and should be wary of people who misrepresent that cashless, warranty etc will not be available if they don't buy insurance from them," informs Mathur.
Read this article in :Hindi