Vehicle insurance: Buying a new car after September 1? Know this change

The Madras High Court ruling on making mandatory the bumper-to-bumper car insurance while buying new cars has created a buzz in the industry. Industry sources said discussions are going on to get more clarity related to it. Notably, the Madras High Court has directed that whenever a new vehicle is sold after September 1, the owner will have to buy bumper-to-bumper insurance coverage for the period of five years. Currently, only third-party insurance cover is mandatory for the period of three years at the time of buying the new car, while own damage cover is optional.

The combination of third-party and own damage is called comprehensive insurance policy. The bumper-to-bumper car insurance (also called zero depreciation cover) is a premium policy that ensures 100% claims settlement. Needless to say such policies are costlier than third-party insurance.

“It is unclear if the ruling will apply only in Tamil Nadu or across the country. There is no word from Irdai yet. If someone approaches the court and asks for the clarification, the deadline may get extended,” said an industry source who works in an insurance company.

Bumper-to-bumper vs comprehensive vs third-party

Arun Garg- Director and Head Equirus Insurance, explained bumper-to-bumper insurance cover provides 100% of the claim value (without considering depreciation value of replaced parts) as compared to comprehensive policies which pay for only a certain percentage of the expenses.

“Some comprehensive plans will only pay 50% of expenses incurred for plastic parts damage. There are certain exclusions with respect to claims on engine, batteries, tyres, tubes and glass and also the number of claims one can make in a year,” said Garg.

Third party cover, on the other hand, is a basic insurance cover. It is statutory whereas comprehensive and bumper-to-bumper covers are not mandatory by the law.

“Third-party cover only takes care of your third-party liabilities while comprehensive or bumper-to-bumper cover is an all-round cover for your car. Not only does it protect you against damage and losses caused to any third-party but also damages and losses to you and your own car. So, it is advantageous,” he said.

What next?

If bumper-to-bumper car insurance becomes mandatory, it will add to the cost of buying a car. All eyes are on the insurance regulator to get clarity on the same.

“Irdai would wait for the final ruling in case the parties to the case wish to refer this matter to the Supreme Court. If it doesn’t happen, it may issue a directive after due consultation with the insurers. This specific ruling may be challenged as it will increase the acquisition cost for the new car buyers,” he added.