IRDAI Withdraws Long-Term own Damage Cover for Motor Vehicle
The mandated three years (for cars) and five years (for two-wheelers) own damage plan will be withdrawn.
The mandatory third party liability cover will remain the same for three years (for cars) and five years (for two-wheelers).
A single-year own damage plan will be on offer from 1st August, 2020.
The 2018 mandatory long-term insurance plan for own damage will be withdrawn after August 1, 2020. With the current scenario, IRDAI worries the mandatory insurance being costly and unfair for the new customers.
Insurance offered till now
Since September 1st, 2018; the supreme court of India had issued a mandatory long term third party liability cover for three years and five years for cars and two-wheelers respectively. The insurance companies would offer customers a choice between a three year (for cars) and five years (for two-wheelers) own damage plan or a year damage plan along with the third party insurance. The own damage cover would offer protection against theft, accidental and natural catastrophe.
Issues with the Long-Term Policy
With two own damage plans, a lot of the long term prices and terms were not regulated by IRDAI which lead to customer dissatisfaction. A lot of long term plans also had affordability issues as they were sold forcefully for financial interest. A lot of the terms were vague and a policyholder could be stuck with a service deficient insurer with no option to change or amend. Additionally, the actuarial pricing was also a challenge for insurers for long-term own damage covers and the No Claim Bonus (NCB) structure was non-uniform among insurers.
From August 1, 2020, the regular insurance companies will not be able to offer the long term own damage plan instead they will be limited to offer a year own damage plan along with three years (for cars) and five years (for two-wheelers) third party liability cover for new car owners. This will return the freedom to move on from a policy that lacks in services after just a year.
Will it affect the cost of vehicles?
The new plan was also available as one of the options before so this will not be affecting the prices of new vehicles however; it will simplify the policies for buyers at the time of purchase. From August, the policies will only have a single-year comprehensive own damage plan in addition to the mandatory three-year or five-year third party clause for cars and two-wheelers respectively.
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