Last year, new guidelines on motor insurance policies were issued by the Insurance Regulatory Development Authority of India (IRDAI) for those who have purchased a vehicle after 1 September 2018.

Earlier, vehicle owners could either buy a separate third party cover or buy a comprehensive insurance policy (that includes both third-party and own damage insurance) for a period of one year. The rules have now changed to allow insurers to offer long-term motor insurance policies of which, third party insurance covers are compulsory.

The compulsory third-party insurance covers for new vehicle owners are to be purchased for a minimum period of 3 years (for cars) or 5 years (for two-wheelers). The change was introduced to avoid the need to renew policies every year and prevent loss of claim after accidents due to vehicle owners negligence to renew insurance policy on time. The sum assured policies were also increased, thus raising the cost of premium for vehicle owners.

On consideration of problems with long-term insurance covers, a new circular was issued that allows purchase of own-damage cover separately on an annual basis or not purchase one at all.

What options do vehicles owner have?

1. Buy a comprehensive long-term policy (3 or 5 years) that includes both third parties and own damage covers.
2. A bundled cover than comes with 3-year third party cover (for cars) and 1-year OD cover.
3. A standalone long-term third party insurance policy without the OD cover. In this option you can buy the OD separately from the same insurer or another general insurance company or not buy one at all.

The possible confusion

Now if the vehicle owner has opted for option 2, the OD cover will have to be renewed each year. In case the purchase of this cover has been made a little later, say a month after the third party insurance; at the time of expiry of the base cover (3 years later) will the OD also expire?

The answer to the expiry date is in the policy documents. IRDAI guidelines require the insurers to include the start date and the expiry date in the policy documents.

Ideally, an insurer will not issue an OD cover exceeding the third-party policy date. If you are to purchase one with less than one year left for the third party insurance policy to expire, it could be issued to you on a pro-rata basis (that is, you only pay premium for the months covered and not the whole year). This decision lies in the hands of the insurance company that would do it to ease the user experience of its customer. The own damage cover's expiry will not exceed that of the third-party insurance in these comprehensive policies. The vice-versa can happen.

In case of option 3, your OD policy will stay valid even if your third party insurance policy expires, as you have opted for a standalone policy that comes with its own expiry date. However, you will have to renew your third party insurance immediately, as one is not legally allowed to drive a vehicle without such a cover in India. Hence, having only a valid OD cover will not make sense.