What Does IRDA’s Withdrawal of Long Term Motor OD Cover Mean for You?


Are you planning to buy a new vehicle anytime soon? Now buying a new vehicle is going to be easy on your wallet. The regulator, Insurance Regulatory and Development Authority of India (IRDAI) has decided to scrap the option of long-term comprehensive motor insurance policies.

What was on offer earlier?

The Hon’ble Supreme Court, in its order in August 2018, had made it mandatory for every vehicle to have a long-term motor insurance policy. A vehicle buyer had three options to buy an insurance policy –

  1. Long-term comprehensive insurance (own damage with third-party coverage) for three years for four-wheelers and five years for two-wheelers.
  2. Third-party and own damage cover for different tenures – three-year third-party coverage with one year of own damage cover for four-wheelers and five-year third-party coverage with one year of own damage cover for four-wheelers
  3. Only third-party insurance cover – Three years for four wheeler insurance and five years for two wheeler insurance policy.

What is the new rule?

The latest amendment which comes into effect from the 1st August 2020 withdraws the first option, i.e. long-term comprehensive motor insurance plans. Now you can no longer purchase a bike or car insurance policy with third-party and own damage cover for five or three years respectively.

Which insurance policies can you purchase going forward?

This amendment does not eliminate the mandatory rule of long term insurance policy. You still need to purchase a long-term insurance cover. The options available are –

  1. Long-term third-party cover with one year of own damage cover.
  2. Only long-term third-party insurance policy

How does this withdrawal impact you as a consumer?

This move by the regulatory body will make buying cars and bikes easier. The upfront cost of insurance that was required for new vehicles is reduced due to annual own damage cover bundled with three or five-year third-party plans. This move is in favour of vehicle buyers.

This change is in favour of the buyers as any dissatisfaction of your policy can be addressed at the first-year renewal date. You need not continue with the same insurer for own-damage cover. There are a plethora of options that you can choose when buying a motor insurance policy.

What are the reasons for discontinuing long-term own damage covers?

Vehicle owners were burdened with an additional cost of insurance when buying a new vehicle. The regulator took feedback on the pricing of these long-term comprehensive plans and found it to be a burden on the policyholders. Moreover, the cost of the vehicle increased substantially with an increase in tenure. If the policyholder wanted to change the insurance company or upgrade the policy, they would have to wait till the end of the term. Added to it, the no claim bonus under such long-term policies was confusing.

To conclude, now that the amendment deletes the long-term own damage covers, you have the choice to select your insurance plan and company annually. Use suitable add-ons like a zero depreciation, or engine protector, or NCB protector to take advantage of these comprehensive plans to the fullest.