New motor rules hike insurance cost of a new car substantially

New motor rules hike insurance cost of a new car substantially thumbnail
Owning a car or bike has become costlier than before. This is thanks to the increase in insurance cost over the past year.

The Insurance Regulatory and Development Authority of India (Irdai) has introduced two new sets of rules where the total outflow towards insurance has gone up. Sample this: The first year insurance cost for a car of capacity of over 1500 cc, say a Hyundai Creta, has gone up from about Rs 23,897 to nearly Rs 45,804 or even higher – an increase of Rs 21,907.

“The cost will definitely be impacted as customers will now have to buy the (third-party) policy for a longer term, i.e., 3 years in case of a car and 5 years in case of a two-wheeler. Along with this they will also have to get a mandatory PA (personal accident) cover for the owner-driver worth Rs 750. This will give a push to the overall cost of premiums,” says Tarun Mathur, Chief Business Officer- General Insurance, Policybazaar.com.

Rule 1: Pay motor third-party insurance upfront
The first reason is because Irdai has asked the insurers to offer only 3-year Motor Third Party insurance cover for cars and 5-year covers for two-wheelers. The premium has to be collected for the entire term (three years or five years as the case may be) at the time of getting insurance. This means instead of paying annual third-party premium, it has to be paid as a lump sum in the initial year and again only in the beginning of the fourth year. Noticeably, it’s only the third party premium that needs to be paid as a lump sum, while the own-damage premium may be paid either annually or as a lump sum.

To whom it applies: The upfront payment rule will apply only for cars and two-wheelers if it is purchased after September 1, 2018. On older vehicles, the option to pay annual premium continues.

Impact: As can be seen in the table below, for car models such as ALTO 800 (Not exceeding 1000 cc), the buyer now has to pay Rs 17,132 (own damage 1 year) or Rs 30,142 (own damage 3 years), instead of Rs 10,541 annually earlier. It may also be noticed that instead of paying Rs 31,623 (Rs 10541 for 3 years) the upfront payment is now Rs 30,142, a savings of almost Rs 1,400. However, this advantage is not available for higher capacity car models.

Impact of new motor insurance rules : How insurance cost has gone up



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