Go for long-term cover to insure your two-wheeler

Over the past few months, different insurance companies including Bharti AXA, Universal Sompo and SBI General, have joined the bandwagon of insurers offering long-term two-wheeler covers. A marriage between convenience and lower costs, such two-year and three-year covers are handy for the forgetful. However, there are important factors that one needs to be aware of when buying a long-term cover, industry experts told DNA Money.

The brass tacks: Generally a new two-wheeler comes with a one-year policy. Third-party (TP) liability insurance is mandatory for all vehicles. This covers liability for injuries and damages to others that you can be responsible for. In addition, it is prudent to cover loss or damages to the vehicle itself by way of comprehensive/package policy, which covers both TP 'liability' as well as 'own damage' (OD) to the insured vehicle.

TP insurance rates are announced annually. Since they are linked to engine capacity, premium for a Bajaj Pulsar and a Royal Enfield Bullet will differ. Once a long-term policy is bought with a term of three years, you don’t have to track for the renewal at the end of every year. Both two- and three-year variants are available currently in the market.

"Since the premium for two- and three-year policies is paid upfront, insurers are passing on discounts to the consumers of up to 7-8%. Plus, by buying a long-term policy, you can lock the price of third-party liability premiums at the beginning of the policy for the next two or three years and thus add to the savings amount," says Puneet Sahni, head product development, SBI General Insurance. Also, there is zero impact of change in service tax during the policy period.

Look closely at details: When you opt to buy these policy online through online marketplaces, your premium is usually lower than offline channels because there are no agent commissions and related expenses.

Atrey Bhardwaj, head-general insurance, BankBazaar advises that one of the things you need to keep in mind while opting for a long-term motor insurance is that the insured declared value (IDV) would continue to depreciate every year similar to if you had bought three successive one-year policies. "This means that the premium one pays for long-term remains constant but actually covers a lesser amount owing to depreciated value of the vehicle," notes Bhardwaj. For e.g., a three-year policy for Hero Motocorp Maestro scooter (2015 make) will have an IDV of Rs 44,449 for year one, Rs 40,004 for year two and Rs 35,559 for year three even though you paid Rs 619 as annual TP liability premium for all the three years.

A long-term cover is handy because a typical annual renewal or reissue of policy might also require a vehicle check, which can hike the premium. Another thing to look at is sops offered with long-term covers. "The no-claim bonuses (NCB) on long-term policies are also more attractive than one-year policies. Some insurers also offer refunds upon cancellation of long-term policies in case of theft or loss," points out Archit Gupta, founder and CEO, ClearTax.

Long-term secrets: Do note that when you buy a long-term policy, there is no advantage in case of reduction in TP premiums over the next couple of years.

If you are going to sell the vehicle soon, the benefits of a long-term cover will go the new buyer. “Any person who intends to sell the vehicle shortly should not indulge in a long term policies,” adds Sahni.

The discounts offered are not much in long-term policies, argues Rakesh Goyal, director, Probusinsurance.in. “In some cases, the discounts are small. Customers may earn a higher return on keeping the money (second- and third-year premiums) in investments, than using it for buying insurance,” says Goyal.

Chances of you actually filing an insurance claim are pretty low! Rahul Agarwal, founder and director, Ideal Insurance points out, "Third-party insurance rates for two wheelers are not hiked (as much) as claims ratio is very favourable. Even own damage claims are not much in two-wheelers. Since the ticket size (premium) is small, insurers save on administration costs by insuring it for long term."

THE LARGER VIEW

• Long-term cover is handy as annual renewal or reissue of policy might require a vehicle check, which can hike premiums
   
• Customers may earn a higher return on keeping the money in investments, than using it for buying insurance