3 / 5-year 3rd-party insurance must from September 1, 2018

In the wake of a Supreme Court order dated July 20, 2018, the Insurance Regulatory and Development Authority of India (IRDAI) has issued a notification stating that third party insurance cover for new cars and 2-wheelers will be mandatory for a period of 3 years and 5 years respectively from September 1, 2018.

The notification also states that the premium must be collected for the entire term (3 / 5 years depending on the type of vehicle) but will be recognised on a yearly basis, while the remainder should be treated as advance premium or premium deposit.

The insurer or the insured can only cancel the policy in case the vehicle is sold or transferred or if the vehicle is not in use due to total loss or constructive total loss. Double insurance can also be a valid reason to cancel the policy.

Earlier this year, the IRDAI had notified all insurance companies to design long-term third party insurance policies for cars and 2-wheelers, sighting that it would reduce the need for renewing the policy every year. While the one-time cost of insuring a vehicle will rise, the move is expected to bring down the insurance rates in the long run. The number of insured vehicles on Indian roads is also expected to go up from the current estimate of 50%.