Advantages And Disadvantages Of Long Term Car Insurance

Long term or Multiyear car insurance and bike insurance has become the new norm in the insurance industry. IRDA has introduced long term motor insurance to reduce the number of uninsured vehicles on the road and increase the insurance penetration in India. The major reason for the non renewal of motor insurance is the forgetfulness or negligence of the people. This can lead to serious trouble at the time of claim where the insurance coverage would not be available and can be avoided by purchasing long term motor insurance.

Basic third party insurance is mandatory for every vehicle to ply on the Indian roads without which you can be fined up to Rs.5000 and up to 3 years on imprisonment or both. In case of a third party claim the claim amount cannot be calculated up front as the claim amount is awarded by the honourable courts after taking many factors into consideration.

According to a survey it is found that majority of the customers are not renewing their insurance cover after the completion of first year which has resulted in many uninsured vehicles plying in public places without any proper coverage. IRDA has therefore introduced long term motor insurance where the cars can be insured up to 3 years and two wheelers up to 5 years by paying a single premium. This helps to reduce the number of uninsured vehicles on the road and thereby increasing the chances of third party claim settlement.Let us understand the advantages and disadvantages of long term motor insurance:


High discount:

Insurance companies are offering good discounts for customers who are opting long term motor insurance. Extra discounts of up to 7.5% on the own damage are offered to customers who opt for long term motor insurance. This way the insurance companies can get the bulk premium and at the same time customers can get long term coverage by paying single premium.


Despite several reminders from the insurance companies for renewal, may people still forget to renew their car insurance. This can be avoided by opting for long term motor insurance where the customer can have convenience to pay the premium once and enjoy the coverage for three year in case of car insurance and 5 years in case of two wheeler insurance. There would not be any hassle of yearly renewal and thereby increasing the convenience for the customer.

TP Price Hikes can be avoided:

Third party premium is subject to change every year depending on the Loss ratio of the previous year, GWP collected and many other factors. If you are taking a long term policy then the TP premium prevailing at that point of time will be collected from you thereby reducing your burden of paying extra TP premium every year.

Third party premiums are expected to increase anywhere near 5-10% each year and this premium can be saved if you opt for long term motor insurance. For instance if the TP premium for a car with less than 1000 cubic capacity is Rs.2072 this year, the same premium is calculated for three year and is collected from the customer. If the TP premium increases after taking the long term policy, the customer is not liable to pay the increased premium to the insurance company.

Break-in issues:

If the insurance policy is not renewed before the expiry date, then the insurance companies ask for inspection report basis which the acceptance of risk will be decided by the insurance companies. If the insurance policy is taken for a single year, then the chances of break-in insurance are high which can lead to inspection every time the insurance is renewed. The first party car insurance covers the loss or damage to the car due to an insured peril.

In case of long term motor insurance policies the break-in can be avoided as the policy term is of 3 years for cars and 5 years for two wheelers. Break-in inspection increases time taken to issue the policy and may be difficult if there is an urgent work and the break-in policy is not issued.


High premium outgo:

The premium outgo in case of long term motor insurance is high compared to the yearly insurance premium. For example if the yearly premium for your car is Rs.5000, the long term premium for your car would be anywhere near Rs.14000 after applying all the discounts. This much premium may not be payable by most of the customers due to their affordability.

Many customers are of the opinion that the insurance prices are higher and only a few of them are benefitting out of it by claiming. Only a few customers opt for long term motor insurance due to the heavy premium outgo in a single event. The motor insurance premium payment in instalments is not yet available from the IRDA.

No option to change insurer:

Long term motor insurance is where the insurance is offered for 3 years for cars and 5 years for two wheelers. If a customer wants to change his insurer, then he has to wait till the completion of the policy period to change the insurer or cancel his existing insurance policy and take from the other insurance company.

IRDA has not yet introduced the concept of Motor insurance portability where the customer can change his insurance company if he/she is not satisfied with the services offered by the insurance company by submitting application to the new insurance company. In case of long term motor insurance policies customers can get struck with the same insurance company for three years even though they are not satisfied with the service offered by the insurance company. This problem can be addressed only after the introduction of motor insurance portability by the IRDA.

NCB calculation:

One more disadvantage with the long term motor insurance is the calculation of No claim bonus. At the time of issuance of the policy the NCB present will be taken into consideration and the premium is calculated. If at any point of time during the policy period you make a claim then the NCB becomes zero and the insurance company will issue a notice to pay the NCB amount availed for the renewal.

Car insurance calculation takes into account the previous year no claim bonus and decides the premium payable this year. No claim bonus in car insurance calculation is based on the previous year NCB. The no claim bonus would become zero if there are any claims in the expiring policy period.

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