Car Insurance in India
Insurance is a hedge against unplanned eventualities, financial protection against losses that are unplanned and unknown. Car insurance bestows similar protection to your car, wherein the insurer provides coverage against the financial liabilities arising from damage or theft of the insured car. It also offers coverage against liabilities arising from third-party damages.
Car insurance in India is legally mandated under the Motor Vehicles Act. The responsibility of acquiring valid car insurance prior to plying the vehicle on the road falls upon the car owner. As per the Motor Vehicles (Amendment) Act, 2019, the fine for driving without a valid license is:
- First-time Offence: ₹2000 or three-months imprisonment
- Second-time Offence: ₹4000 or three-months imprisonment
Types of Car Insurance in India
Car insurance policies in India can be distinguished and further differentiated on the basis of two aspects: the extent of coverage and the length of coverage.
- The Extent of coverage: Car insurance can be divided into Comprehensive Plans or Third-Party Liability Plans. While third-party liability plans cover only third-party damages, a comprehensive plan covers theft, damage, and loss of your car, along with third-party damages.
- The length of coverage: Based on the length of the coverage tenure, car insurance can be divided into Annual Car Insurance and Long-Term Car Insurance
Annual Car Insurance policies have conventionally been the norm for car insurance buyers. However, the July 2018 mandate of the Supreme Court of India brought in compulsory long-term third-party motor vehicles insurance.
Let us understand what each of this type entails and the differences between the two.
What is Annual Car Insurance?
Car insurance policies that offer coverage for one year from the policy issuance date are known as Annual Car Insurance policies. Annual plans have been the traditional tenure type, with insurers offering one-year coverage for both comprehensive as well as third-party plans.
What is Long-Term Car Insurance?
A long-term car insurance policy offers multi-year coverage (5 years as per the mandate in India) for the insured car. They eliminate the hassle of yearly renewals and sustains the shield of coverage for an extended duration.
The Emergence of Long-Term Car Insurance in India
On 20th July 2019, the Supreme Court of India made it mandatory for buyers of new cars to purchase upfront car insurance policy for three years. This was done in view of the low number of insurance coverage and to improve motor insurance penetration.
The Insurance Regulatory and Development Authority of India (IRDAI) left it to the insurance companies to decide the combination of third-party and own-damage coverage. While third-party coverage got pinned at a mandatory three-year tenure, Own-Damage cover was still annual. That created confusionand made the whole process tedious.
Thus, to streamline the process of purchase and renewal of policies, prominent insurance companies like Tata AIG started offering long-term comprehensive car insurance to supplement the compulsory three-year third-party plans.
A long-term comprehensive car insurance policy not only matches the term of the compulsory third-party plans but also ensures convenience in renewal. The insured can shield themselves against policy price hikes and avail attractive discounts offered by insurers on long-term policy premiums.
Annual Car Insurance vs Long Term Car Insurance
The primary difference between the Annual and Long-Term Car Insurance plans is the tenure of coverage. Apart from the extended coverage advantage, let us delve into other differences between the two:
|Annual Car Insurance
|Long-term Car Insurance
|Once in three years
|Prevent frequent policy lapses with long-term insurance
|Higher flexibility due to yearly renewals
|Same policy coverage for three years
|Enjoy the flexibility to modify your policy coverage, choose add-ons, select offers, change providers, etc. every year with annual plans.
|Less cost-effective due to yearly price hikes
|More cost-effective due to longer tenure
|Safeguard yourself from the yearly hike in policy premiums and avail the discounted price offered by insurers with long-term insurance.
|Own Damage Premium
|OD discount not applicable
|OD discount applicable
|Enjoy the benefits of discounts offered by insurers on Own Damage cover with long-term insurance.
|No Claim Bonus
|NCB discount is lower
|NCB discount is higher
|Avail higher No Claim Bonus as a reward for not claiming for 3 years with long-term insurance
|Higher opportunity to add riders
|Low opportunity to add riders
|Get the flexibility andadvantage of adding or modifying riders every year with annual insurance
|New Cars vs Old Cars
|Suitable for old vehicles
|Suitable for newer vehicles
|Get annual insurance for older cars that you may not use for long. For newer cars, insure them for longer tenure with long-term insurance
Car Insurance Premium Prices for 2020-21
While the premium rates for the comprehensive car insurance plans – both annual and long-term are determined by the insurance companies, the third-party insurance prices are announced every year by the IRDAI.
For 2020-21, the IRDAI proposed a substantial hike in the third-party car insurance premium prices for both annual and long-term plans.
The proposed four-wheeler third-party premium rates for 2020-21 are:
|Cubic Capacity of the Engine
|Proposed Rates for Annual Policies (₹)
|Proposed Rates for Long-Term Policies (₹)
|Up to 1000 cc
|Above 1000cc but below 1500cc
Which Policy Should I Choose Between Annual Car Insurance and Long-Term Car Insurance?
While both annual and long-term policies have their specific pros and cons, the choice of the car insurance policy depends upon your needs and financial capabilities. Long-term car insurance policies are cost-effective, as insurers offer substantial discounts. But they require you to cough up a high premium amount as a one-time payment. Annual policies, on the other hand, have slightly higher premiums, but the cost is spread over a few years. While long-term policies offer the convenience of extended tenure and freedom from annual renewals, annual policies offer the seamlessness of yearly modifications, additions or migrations.
Thus, for higher flexibility and on-point coverage, opt for annual car insurance. While, for convenience of renewals and cost-effectiveness, go for long-term car insurance policies.