personal finance

Can standalone OD car insurance policy remain valid if third-party insurance expires earlier?


Last year, the Insurance Regulatory Development Authority of India (IRDAI) issued new guidelines for motor insurance policies for new vehicle owners (i.e., those who bought vehicles on or after September 1, 2018). Insurers are now allowed to offer stand-alone annual own damage (OD) insurance policies (including stand-alone own damage policy for fire and/or theft) for cars and two-wheelers, both new and old.

Till September 1, 2018, only two types of motor insurance policies were available where vehicle owners could either buy a third-party cover for their car or buy a comprehensive insurance policy which included OD insurance policy and third-party insurance for one year.

However, on and after September 1, 2018, IRDAI allowed insurers to offer long-term motor insurance policies and made long-term third-party insurance compulsory for new vehicle owners.

Thereafter, new vehicle owners who bought the compulsory long-term third-party cover for their vehicles had the option of buying any one of the three types of insurance policies.

Type 1. A long-term comprehensive insurance policy which would provide 3-year comprehensive covers for cars. This comprehensive cover includes both vehicle OD policy and third-party insurance.

Type 2. A bundled cover with a 3-year third-party cover and a 1-year term for OD cover for cars. So, if you purchased this cover last year, then your OD cover would be expiring some time now.

Insures have now been allowed by IRDAI to offer one-year standalone OD cover to new vehicle owners from September 1, 2019. Therefore, now they can renew/buy the own damage component by purchasing 1-year standalone OD policy from the same or different insurer.

Also read:
How new vehicle owners can buy, renew 1-year own damage cover with third-party insurance

Type 3. A standalone long-term third-party insurance policy. If you have bought only long-term third-party motor insurance without OD cover, you can now buy 1-year OD cover if you want to.

Now this is the question that arises: what happens if the owner wants to buy OD policy after some time of buying the third-party cover? Alternatively, what if the new vehicle owner does not renew the standalone OD policy on expiry of the previous 1-year OD policy but buys a new OD policy after a time gap?

In a scenario like this, the standalone 1-year OD policy may expire after the third-party policy expires at the end of the 3 years of the latter’s term, i.e., there will be a time period when the third-party insurance would have expired (unless renewed) but the OD policy term would not have expired.

So, will the standalone 1-year OD cover remain valid for a vehicle if its third-party insurance expires before? Or, will the insurer issue the standalone 1-year OD policy on a pro rata basis so that standalone 1-year OD policy and the third-party insurance cover expires on the same date?

Currently, in India, it is mandatory for vehicle owners to buy third-party insurance, and according to the new IRDAI guidelines, you can only buy a standalone 1-year OD policy if you already have a motor third-party cover or take it simultaneously. However, in the notification, IRDAI has not mentioned for how long (time period of the policy) one has to buy standalone 1-year OD policy if one misses the renewal date of the previous OD policy and buys it after a month or so.

Here’s what insurance experts have to say.

Some insurers say that OD cover must be co-terminus with third-party cover.

According to IRDAI guidelines, one of the conditions of selling or purchasing a standalone OD cover is that the name of the insurer, policy number and the start date and end date of the third-party policy that you already have bought simultaneously has to be specified in the Own Damage policy document.

In view of this statement, Kapil Mehta, CEO, Securenow.in, a Delhi-based insurance broker, said that the insurer cannot issue a policy where the OD policy end date exceeds the third-party policy end date, as for an OD policy to be valid it is required to be bundled with a third-party policy. “If you purchase a third-party policy which is issued for a time period of three years and for some reasons you do not purchase an OD policy, the insurer can issue an OD policy on pro-rata basis either in the beginning or in the end of the third-party policy period, provided the end date of the standalone OD policy does not extend the end date of the third-party policy.”

Mehta explains, if a motor vehicle owner ‘A’ purchases a third-party policy as on July 1, 2019, the policy end date will be June 30, 2022. Now if ‘A’ wants to buy an OD policy on October 1, 2019, the insurer can either issue an OD policy on pro-rata basis from October 1, 2019 to June 30, 2020 followed by 2 annual OD policies or October 1, 2021 to June 30, 2022 after two annual OD policies. In both the cases, the condition of OD policy end date not exceeding the third-party policy end date will be met.

Devendra Rane, founder & CTO, Coverfox.com said that as per IRDA ruling for short-term policies, both OD cover and third-party premiums can be charged for any duration of the cover. This can be used by an insurance company to either create a short-term third-party policy for the duration equal to the difference of OD cover and third-party expiry, or an OD cover can be created on a pro-rata basis to match the balance term of the third-party cover, he said. It will be a decision that an insurer would take according to the need of providing the best user experience, according to Rane.

“Hence, the most likely outcome would be that OD cover premium would be charged on a pro-rata basis as per the IRDA guidelines of a short-term cover. This is because it simplifies the user experience and takes away a lot of deliberation at the customer end. However, insurance companies might implement things as per their internal systems,” he said.

Ravichandran N, EVP & CTO, Kotak Mahindra General Insurance Company, said there are multiple scenarios that could exist in the new regime. As per IRDAI regulations, the long-term third-party cover is mandatory for brand new private cars and two-wheelers. However, expiry of the own damage cover cannot be later than the expiry of the third-party cover. Which means no policy can have own damage coverage beyond the validity of third-party coverage. “So, there may be scenarios where own damage cover has expired and third-party cover continues but vice versa cannot happen. Even for buying standalone own damage cover policies, you need to have a valid third-party policy coverage,” he said.


Some insurers feel that OD cover and third-party cover need not be co-terminus.


According to IRDAI guidelines you can renew the standalone own damage policy with the existing insurer or different insurer only on an annual basis.

In view of the above, Tarun Mathur, Chief Business Officer- General Insurance, Policybazaar.com said that there is no clarity from the regulator on the treatment of standalone OD policy yet. However, if a situation crops up where the OD policy expiry date is later than the third-party policy date, then the OD policy will run as a standalone policy. “The policy cycle will be for one-year and will remain active for that duration,” he said.

Mathur explains, suppose if you have a third-party policy which is expiring on December 7, 2019 and you buy a standalone 1-yearOD policy on September 1, 2019. In such a case, even after your third-party policy expires in December, your OD policy will continue as it will be issued for the period of one year. However, you have to renew your third-party policy immediately as without this you cannot drive your car in India (as per law), he adds.

Naval Goel, CEO & founder of PolicyX.com said that in a situation when OD expiry date is later than third-party policy expiry date, the OD cover will remain active till its expiry and will offer the OD coverage to the insured’s car. The reason behind the same is that these two are a totally different covers, third-party insurance covers damage to a third party caused by the insured’s vehicle and OD insurance covers damage to the insured’s own vehicle only. So, in such a situation, insurance of the insured’s vehicle will be active till its expiry, but the insured will have to renew the third party cover as well as it is mandatory to have by Indian law. However, such situations are very rare, he added.

“It is advisable for you to go for a comprehensive cover in the first place so that you are completely covered against different unwanted road emergencies,” he said.

Some insurers feel the matter needs further clarification.

However, a senior official from Bajaj Allianz General Insurance said, “At the moment we cannot share any response on the subject matter. We are seeking clarity on this issue from IRDAI. The General Insurance Council (GIC) has taken up the issue with the regulator for the entire industry.”





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