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Multi-Year | Long Term Insurance Policies For Four-Wheelers Research Team | Posted On Wednesday, July 25,2018, 06:36 PM

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Multi-Year | Long Term Insurance Policies For Four-Wheelers




The Motor Vehicle Act, 1988, mandates vehicle owners to get their vehicles insured with at least third-party liability motor insurance, if not a comprehensive motor insurance plan. Despite this mandate, around 75% of bikers have not insured their two-wheelers.

The biggest challenge after availing a motor insurance plan is to renew it each year. It is up to the insurer to decide if there should be a grace period for the renewal. If you fail to renew your motor insurance policy in time, you have to apply for a new policy. You will have to get your vehicle examined before availing the insurance. Worse, if your policy has lapsed say 3 months back, you will lose the no-claim bonus.

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Multi-Year Long Term Insurance Policies For Four-Wheelers


Keeping these issues in mind and to widen their customer base, insurance companies started offering multi-year policies for two-wheelers. What about the four-wheelers? As of now, no such policies are offered to four-wheelers. Offering multi-year auto insurance policies for four-wheelers is not short of challenges. Nevertheless, this might change too.

Considering road safety, the Supreme Court requires third-party liability insurance to be made mandatory for 3 to 5 years, at the time of the sale of third-party insurance for two-wheelers and four-wheelers.


Motor insurance policies are of two types:


1. Third party liability

2. Own damage (OD) or Comprehensive Motor Insurance

As mentioned earlier, it is mandatory for all registered vehicles to have third-party liability cover in India. A third party liability covers liabilities/costs arising from damage caused to a third party and not to the insured or their vehicles. The premium for the motor insurance is fixed by IRDAI on a yearly basis.

See Also: 4 Insurance Policies You Must Have

Multi-year policies for two-wheelers:


As of now, multi-year policies are offered to two-wheelers for up to 3 years. When vehicle owners get their vehicles insured, they get a policy certificate for a maximum of 3 years. Having a multi-year policy saves you from renewals each year. In case of a single-year policy, the insured remains uninsured for the period between the date of the policy lapse and the date of renewal.

A multi-year motor insurance policy has lower premiums for subsequent years. The premium for third-party liability is fixed at the beginning of the first year. Therefore, the insured escapes the annual third-party rate hikes in the subsequent years. Third party insurance is priced based on the previous years’ claim experiences. Thus, premiums of third-party insurance are revised each year.

The experience of multi-year policies for up to three years might help in offering five-year policies. But, this is not totally reliable as it is still a new product. The experience will only help after a few years.

Owing to a number of reasons like inflation and increasing numbers of court awards, claims in India have increased. This poses a difficulty in arriving at the right pricing for a multi-year policy.


SEE ALSO: IRDAI Looks To Minimize Health Insurance Exclusions


Multi-year policy for four-wheelers:


Now that the Supreme Court has passed a directive, IRDAI, the insurance regulator, will order insurance companies to offer multi-year policies for four-wheelers too.


Advantages of a multi-year motor insurance policy:


  • A multi-year policy offers cover for at least a few years. Therefore, you don’t have to renew your policy each year for a specified number of years.
  • An insured would know the premium amount, i.e. price to be paid for the next few years.
  • The pricing in a single-year motor insurance plan changes each year. Whereas, in a multi-year insurance policy, the price is kind of pre-determined at the beginning of the first year itself.
  • Insured will be able to retain the no-claim bonus benefits.
  • Subsequent premiums after the first year will be lower.


Challenges of a multi-year motor insurance policy:


  • The insured may still choose not to renew the plan after the mandatory three or five years.
  • Pricing of a multi-year motor insurance policy is difficult.


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