The court has directed that buyers of new private cars must purchase four years of third-party insurance, while buyers of new two-wheelers must buy six years of mandatory cover at the time of purchase. The earlier requirement was three years for cars and five years for two-wheelers.

The order was passed on August 4 by a Bench of Justice Sanjay Karol and Justice Prashant Kumar Mishra in National Insurance Co. Ltd. v. Smt. Thungala Dhana Laxmi & Ors. The court also asked the Insurance Regulatory and Development Authority of India (IRDAI) to issue the necessary directions for implementation.

The step has been taken to enhance compliance with the legal mandate on motor insurance and to ensure that people who suffer accidents are not denied their claims because the offending car is not insured. The court highlighted the fact that 56 percent of all vehicles plying on the streets of India are not insured.

What Has Changed?

The biggest change is the mandatory insurance tenure for new vehicles.

Until now, buyers of new private cars had to purchase three years of third-party insurance, while buyers of new two-wheelers had to buy five years of cover. Under the latest order, the compulsory tenure increases to four years for cars and six years for two-wheelers.

The rule applies to new vehicles purchased and registered after the directions are implemented. Existing policies will continue under their current terms unless IRDAI issues separate transition guidelines.

Will Buying A New Vehicle Become More Expensive?

Yes, but only because buyers will have to pay one additional year of mandatory third-party insurance premium upfront.

This does not mean the annual premium has increased. Instead, the premium for an extra year will now be collected at the time of purchase. As a result, the on-road price of a new vehicle is expected to rise modestly.

However, buyers will not have to renew their mandatory third-party insurance every year during this initial period. The objective is to reduce policy lapses in the first few years of vehicle ownership.

Does The Order Affect Existing Vehicle Owners?

The Supreme Court's directions are meant for new vehicles purchased and registered after implementation. Existing vehicle owners can continue with their current insurance policies. Any future changes for existing policyholders will depend on separate directions issued by IRDAI.

What Is Third-party Insurance?

Third-party insurance is the minimum insurance cover required under the Motor Vehicles Act.

It pays for injury, death or property damage caused to another person by your vehicle. It does not pay for repairs to your own vehicle.

Comprehensive insurance, on the other hand, covers third-party liability as well as damage to your own vehicle, depending on the policy terms. The Supreme Court's latest order does not make comprehensive insurance mandatory.

Why Did The Supreme Court Extend The Insurance Tenure?

The court said a large number of vehicles continue to run without valid insurance despite earlier directions.

According to figures cited in the judgment, around 16.54 crore vehicles-about 56% of those on Indian roads-are uninsured. The court observed that this weakens the system of compensation for accident victims because claims become difficult when the offending vehicle has no valid insurance.

The Bench also referred to rising road accidents and delays in compensation cases. It said extending the mandatory insurance period would improve compliance and ensure that more vehicles remain insured during the early years of ownership.

Other Important Directions Issued By The Court

The Supreme Court did more than extend the insurance tenure.

It directed IRDAI and the Ministry of Road Transport and Highways to introduce technology-based enforcement measures. These include linking Automatic Number Plate Recognition (ANPR) cameras with the VAHAN database and the Insurance Information Bureau to identify uninsured vehicles and issue automatic e-challans. State police have also been asked to use handheld devices for real-time insurance verification.

The court also asked authorities to develop a pilot project that could link fuel purchases with valid insurance status. Under the proposal, vehicles without valid insurance may not be able to buy fuel until they obtain the mandatory cover. The court clarified that this is currently a pilot project to be developed by the concerned authorities and not an immediately enforceable nationwide rule.
Another significant direction is the introduction of a four-layer insurance framework for private vehicles. Under this structure, third-party insurance will remain mandatory, while occupant liability cover, personal accident cover and own-damage insurance will be offered as optional layers. Insurers will also have to provide customers with an information sheet explaining the available coverage options before a policy is sold.

What Buyers Should Keep In Mind

If you are planning to buy a new car or bike, expect a slightly higher insurance bill at the time of purchase because of the additional year of mandatory third-party cover.

The order does not prevent buyers from choosing their preferred insurer. It also does not make comprehensive insurance compulsory. Buyers should carefully review the insurance options provided by the insurer or dealer before finalising the policy.

The judgment delivered by the Supreme Court is meant to enhance compliance with the third-party insurance requirements, as well as protect accident victims. Although it may increase the cost of acquiring a car initially, it also guarantees that the third-party insurance remains valid for an extended period of time.

Will UPI Payments Become Chargeable? Who Will Pay As Per New bill And What Users Need To Know