Guidelines issued by IRDA for Motor Insurance

  • March 06, 2024
  • Dushyant Sharma
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What is IRDA?

The Insurance Regulatory and Development Authority (IRDA) is a government body that regulates and oversees the functioning of the insurance sector in India. It issues guidelines which have to be followed by all the insurance companies for different insurance products such as personal, life insurance, motor insurance, etc. The rules set by IRDA must be complied with by the policyholders and insurance companies since it ensures faster processing when it comes to the settling genuine claims, grievance redressal, elimination of unethical practices and prevention of car insurance fraud.

What is meant by Motor Insurance? 

Motor insurance covers insurances related to private cars, two wheelers, commercial vehicles and different types of road transport vehicles. Owning a motor insurance policy is mandatory in India. It is a punishable offense to drive a vehicle without having a valid insurance plan according to the Motor Vehicles Act, 1988. When an individual avails insurance policy, he gets a certificate of insurance by the insurer as per Rule 141 of Central Motor Vehicle Rules, 1989.

What is offered by the Motor Insurance?

The motor insurance policies provide coverage to the policyholders against:

  • Damages caused to the insured vehicle
  • Compensation for third party liability against the owner of the vehicle inclusive of third party property damage. 

Types of Motor Insurance Covers in India

There are two types of motor insurance policy coverages for the vehicle owners:

  • Liability Only Policy: All registered vehicles are required to obtain third party liability insurance as the same is mandatory in India. If the vehicle owner opts for Liability Only Policy, then the insurer won’t cover the vehicle damages.
  • Comprehensive Package Policy: It includes protection against damages to vehicles along with the Liability Only Policy. This policy offers a vehicle owner a wider coverage for the insured vehicle.

This table provides a list of liabilities which are covered under a Comprehensive Package Policy:

Natural Disasters 

Man-made Disasters 

Lightning 

Burglary

Fire

Theft

Floods, Earthquakes, Cyclones, Storms, Tempests, Hurricanes, Frost, Hailstorm and Inundation

Self-Ignition 

Landslides and Rockslides 

Riots, Terrorism and Malicious Acts while the vehicle is in transit through any means of transport Accidental External Sources 

 

These are some add-ons that generally come with Comprehensive Motor Insurance Policy: 

  • Zero Depreciation: Customers can opt for this add-on facility since it helps in processing claim settlement amounts or reimburse your bill payments of all segments of vehicles. This add-on enables customers to receive the entire claim amount without any deduction for depreciation factor. It is an optimal choice for vehicles that are under 5 years of age.
  • Engine Protection Cover: This add-on facility offers financial assistance to the customer regarding all the expenses in case of a damaged engine of the vehicle. The damages can be due to electrical or mechanical breakdown, oil spillage, water ingression or complete replacement of all the engine parts of the car.
  • Consumable Cover: Policyholders can opt for this add-on facility for the expenses related to the consumable elements which aren’t included under the standard policy, like the bearings, fuel filter, grease, engine oil, lubricants clip, air conditioner gas, oil filter, washers, oil for brakes, nut, bolts and screws.
  • Return to Invoice Cover: Once the first year of the policy comes to an end, the policyholders can avail this facility. It provides the full balance without taking in consideration the percentage of the declining balance in case where there is complete damage to the vehicle in an accident.
  • Tyre Protection Coverage: This provides financial assistance when it comes to expenses related to the damages caused to the tyres such as cuts on a tyre amidst an accident, in-tyre bulges, tyre puncture and other similar damages.
  • Roadside Assistance: It provides financial help during the times of emergency while you are driving whether on roads in the city or the remote area. For this, the policyholder with this add-on must contact the insurer so that he can provide garage service through network garages in case of failure of the engine.

IRDA Guidelines for Comprehensive Car Insurance Cover

Motor insurance companies must follow guidelines issued by IRDA while offering motor insurance policies to the customers. Customers should only purchase motor insurance policies from companies with IRDA license/certification

The following are the guidelines given by IRDAI for comprehensive car insurance cover:

  • It is not mandatory to have a comprehensive insurance policy as per the guidelines of IRDAI.
  • The Comprehensive Insurance Plan is recommended since the third party insurance does not provide financial protection against damages caused to the policyholder’s vehicle.
  • Comprehensive insurance policy ensures all round protection for the vehicle owner due to three things which are third-party cover, own-damage cover and cover in case of personal accident.
  • If a customer purchases a comprehensive plan, he does not need to buy a separate third-party insurance cover. Comprehensive plan includes damages caused to the vehicle due to natural and man-made disasters both. These plans can be customized by opting for add-on by paying an additional premium amount for them.

IRDA Guidelines for Third-party Car Insurance Cover  

Having a third party liability car insurance policy is mandatory by IRDAI. This policy provides coverage to the car owners in case of third-party losses. There are some key rules regarding this type of insurance which are mentioned below:

  • A minimum required insurance coverage is provided through third party insurance in case of car insurance policies.
  • Third party liability car insurance is also referred to as liability only cover since it financially supports the policyholder when it comes to the legal liabilities in case bodily injuries happen to a third person due to an accident.
  • The Motor Accidents Claims Tribunal determines the compensation amount paid for bodily injuries to the person. The claim amount limit for damage to the property is Rs. 7.50 lakh. This is the minimum insurance mandatory for insurance cover available for third-party losses as per the Motor Vehicles Act.

General Exclusions of a Car Insurance Policy

 

Here is a list of general exclusions of a car insurance policy: 

  • Damage caused to the vehicle because the vehicle went against the traffic rules 
  • Damage caused from driving under the influence of an intoxicating substance (like alcohol)
  • Damage caused to the car while driving outside the geographic area 
  • Damages to the vehicle caused when the policy is inactive 
  • Electrical or mechanical failure, intentional damage, regular wear and tear, criminal activity and illegal racing are not covered 

Latest amendments in IRDAI guidelines 

IRDAI regularly updates the guidelines regarding motor insurance. Here are the recent changes in its rules:

  • In the past, it was mandatory for new cars to have a long term car insurance policy of at least 3 years. But as per the new changes, it is no longer mandatory.
  • The car owner has the choice to purchase an annual standalone own damage policy alongside a 3 year third party liability policy. 
  • In case of total loss or theft claims, the Registration Certificate (RC) will be canceled. The policyholders must send their RC to the insurance company in such a case.
  • All passengers who travel in insured vehicles, as recommended by IRDAI, must have an insurance cover of Rs 25,000.
  • Compulsory deductibles are now known as Standard Deducibles. The standard deductibles are fixed at Rs 1000 for cars having 1500cc or less than that. For cars with more than 1500cc engine displacement capacity, it is fixed at Rs 2000.
  • For easier understanding, the no claim bonus needs to have a standard grid. In the past, the insurance companies could decide the amount of bonus which can be granted for policyholders in case of long term policy but now the grid stands the same for all the insurance companies.

IRDAI rules for Car Insurance Renewal

IRDAI has set some rules for car insurance renewal which need to be followed by the car owners. To avail continuous coverage, the policy must get renewed on time. In case there is a gap, the insurance company is not liable to give financial assistance for damages that occurred when the policy is not active. If the car owner does not renew the insurance policy of his car within a period of 90 days since the policy expired, any applicable No Claim Bonus will drop to 0.

IRDAI rules for Total Loss

When the repair cost is extremely high, a car is considered to be a total loss. This can happen in case of major accidents or natural disasters such as floods, earthquakes, etc. The total calculation is directly connected to the Insured Declared Value (IDV) of a car which is declared by the owner when he is purchasing the policy. The insurer has the right to declare a total loss if the repair costs exceed 75 percent of the IDV according to IRDAI.

IRDA Rules for Depreciation

As the car gets older, there is a reduction in its monetary value known as depreciation. Depreciation is a major factor in determining the amount of the claim. 

This table mentions the rates associated with depreciation as per IRDAI:  

Up to 6 months  

5%  

6 months -1 year  

15%  

1 year - 2 years  

20%  

2 years - 3 years  

30%  

3 years - 4 years  

40%  

4 years - 5 years  

50%  

Sum Insured for a Motor Insurance Policy 

The sum insured is determined in case of own damage coverage as stated below:

  • The sum insured is determined by the insurance company based on the current value of the vehicle as per the manufacturer and depreciation value according to the vehicle’s age. The sum insured refers to the value for which the vehicle has been insured and is called the Insured Declared Value (IDV).
  • For third party coverage, the sum insured is determined by the Motor Vehicles Act and it also includes a mandatory cover for car owners in case of personal accident. The motor insurance policy can be taken with add-ons like personal accident coverage for co-passengers and workmen’s compensation for the vehicle driver.

Customer Turnaround Times as Approved by the IRDA

Certain timelines have been defined by IRDAI which need to be followed by the insurance companies as well as the policyholders. These can be regarding claims, complaints, etc.

Here’s a list will all the services and the timeline for each one of them:

 

Services

Timeline

Issuance, processing and Cancellation of policies 

15 days 

Issuance of proposal copy 

30 days 

Services after issuance of policy/Refund of proposal deposits/ Non-claim requests 

10 days 

Survey report submission 

30 days 

Addendum Report for the insurer 

15 days 

Settlement or rejection of claims after the receipt of addendum report

30 days 

Acknowledgement of grievance (calculated from the date of grievance received)

3 days 

Resolution of grievance (calculated from the date of grievance received) 

15 days 

Conclusion

IRDAI is the regulatory authority for overseeing the functioning of the insurance sector in India. Guidelines issued by IRDAI must be followed by all the insurance companies and policyholders since it ensures faster processing when it comes to the settlement of genuine claims and elimination of unethical practices. We hope this article was helpful. In case of any additional help regarding insurance policies or IRDAI’s services such as licensing and certification, you can connect with the team experts of Registrationwala.


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Dushyant Sharma
Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.

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