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Insurance Article

Know How New IRDA Directives Will Affect The On-Road Prices Of Vehicles

December 30 2018
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New rules by IRDAI regarding the motor insurance plans can increase the on-road prices of vehicles

When you go to buy a car or a two-wheeler, you’ll notice that the on-road price that you need to pay for the vehicle is always a bit more than its ex-showroom price. This increase in the price is due to several mandatory fees and charges paid to the government and other authorities in the form of one-time registration fees, road taxes, and insurance charges, etc.

As per the Motor Vehicles Act of 1988, it is mandatory for types of vehicles plying on Indian roads to have a valid third-party insurance plan. Therefore, a nominal insurance cost is compulsorily added to the on-road price of the vehicle that you need to pay while buying it. The premium rates for the mandatory third-party motor insurance plan for all types of vehicles are reviewed and fixed annually by the Insurance Regulatory and Development Authority of India (IRDAI).

Recently, the IRDAI issued a series of directives to the insurance companies, keeping in mind the safety of the drivers or passengers and to address the issue of non-renewal of car insurance once it expires. Let’s find out more about these policy changes and how it’s going to affect the on-road prices of the vehicles in our country:

  1. Multi-year insurance plans for all types of cars and two-wheelers

  2. IRDAI issued a circular in August 2018 which made it mandatory for all types of cars and two-wheelers sold on or after September 1st, to have three-year and five-year insurance plans respectively. This move was aimed at curbing the cases of non-renewal of motor insurance policies, given that many vehicle owners forget to renew it after the initial years.

    On one hand this rule offered price stability and convenience to the vehicle-buyers as they will not have to renew their policy every year, but on the other hand it increased the on-road prices of new vehicles. Instead of paying the renewal premium every year, customers will have to shell out the entire premium outgo for three or five-year insurance plan at the time of buying the vehicle.

    As per the premium rates spelt out by the IRDAI for multi-year vehicle insurance plans, prospective car buyers can end up paying up to Rs. 24,000 more while a new two-wheeler will become costlier by up to Rs. 13,000 depending upon the engine capacity of the vehicle.

  3. Personal accident cover of at least Rs. 15 lakhs for all owner-drivers of the vehicle

  4. In compliance with the Madras High Court order of 2017, IRDAI made it mandatory for all owner-drivers of any type of vehicle to have a minimum Personal Accident (PA) cover of Rs. 15 lakhs under their motor insurance policy. The move was aimed at providing adequate protection for vehicle drivers and add to some succour and solace to the victims of road accidents, who may suffer serious bodily injuries or deaths.

    In a circular dated 20th September 2018, the IRDAI directed all general insurers to provide a minimum PA cover of Rs. 15 lakhs under third-party insurance for all class of vehicles. The premium rate has been fixed at Rs. 750 per annum by the regulatory body. It means the insurance charges for a 3-year plan can go up Rs. 2,250 whereas a 5-year two-wheeler insurance policy will be dearer by Rs. 3,750.

  5. Single PA cover of Rs. 15 lakhs for multiple vehicle owners

  6. Effective from 1st January, IRDAI had allowed unbundling of compulsory personal accident cover (CPA) of Rs. 15 lakhs from the motor insurance policies for new vehicles. It can now be purchased as a standalone PA cover policy from any of the general insurers. This means that now, vehicle owners can buy a single CPA cover for multiple vehicles instead of paying for it every time they purchase a new car or two-wheeler.

    This move will help in reducing the cost of ownership of new vehicles, while also keeping the CPA cover of Rs. 15 lakhs against death and total or partial disability intact. As a policyholder, the premium of Rs. 750 per annum for annual CPA covers was to be paid for both cars and two-wheelers. Now, effectively this is the amount of savings if one already has a standalone personal accident cover.

    With these new rules in place, you may have to shell out a bit more to own a new vehicle, but you can also enjoy an extra layer of comfort, convenience and security with your car insurance plan. It helps you stay away from the hassles of renewing the policy every year and stay protected against the third-party liabilities and bodily damages that can cause death or disability in case of an accident.

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