Is It Better to Have Short-Term or Long-Term Third-Party Insurance?

As per the Motor Vehicle’s Act 1988, all vehicles must have third-party insurance. The government and the Insurance Regulatory and Development Authority of India (IRDAI) have put down several regulations for people to drive on Indian roads. As per the new rule, new two-wheelers must own third-party insurance that has a validity of 5 years. Long-term third-party insurance eliminates the burden of renewing the policy every year and keeps the policyholder protected for longer. Read further to understand whether short-term or long-term insurance is important:

Long-Term vs. Short-Term Insurance

As the name suggests, long-term third-party insurance keeps a person insured for about 3-5 years depending on the policy and short-term third-party insurance would require one to renew their policy annually.

Short-Term Third-Party Insurance

  • Short-term insurance is economical
  • This insurance requires annual renewal of the policy
  • One will not receive cover if they fail to renew the policy
  • The cost of insurance may rise every year

Long-Term Third-Party Insurance

  • One will not have to bother about renewing the policy annually
  • The policyholder can enjoy the benefits of insurance and can be peaceful for longer
  • Since the policy must be renewed only once in a few years, the increase in premium rates may not affect the policyholder too much

Look at the table below to understand some differences between short-term and long-term insurance:

Categories

Short-Term Insurance

Long-Term Insurance

Policy Renewal Date

The policy must be renewed every year

Policy renewal is once in 3-5 years

Flexibility

This insurance allows one to revisit and modify the insurance every year and make use of offers and discounts

One will have to wait for the renewal date to avail of certain discounts and offers. Modifications to the policy can be made only once in a few years

Cost-Effectiveness

This insurance is prone to hikes in premium rates year on year

This insurance is more cost-effective, and many insurance companies offer discounts for long-term insurance

Additional Covers

Short-term insurance allows one to add riders every year during the renewal

Long-term insurance requires the policyholder to wait until the renewal period to add riders

No Claim Bonus

NCB is offered but, since the time period is short, the discount will also below

A comparatively higher discount is offered and the discount for the first claim-free year can go up to 20%

Old vs. New Vehicles

If you own an old vehicle short-term insurance is a smart choice since one may not know how long the vehicle may run

If you own a new car, it will require more protection and long-term insurance would be a smart choice

Benefits of Long-Term Insurance

The IRDAI has encouraged insurers to offer long-term insurance to customers to stop the menace of having to renew the insurance policy every year. Here are some benefits of long-term insurance:

  • Hassle-free process
  • Discounts on premiums
  • High No Claim Bonus
  • The policy will not expire before 3-5 years
  • One can avoid policy lapse
  • The fixed premium amount for the specified 3-5 years
  • NCB will remain intact and not drop in case of a policy lapse

Both short-term and long-term insurances have their advantages and disadvantages but, when it comes down to third-party insurance, it is mandatory that new vehicles are insured with 5-year third-party insurance. If it is comprehensive insurance, one can evaluate their needs and the use of the vehicle and decide the type of policy they require. To know more about third-party insurance, click here!