Tired of the yearly task of renewing your car insurance? You might feel it’s just another chore, but there’s a very big reason behind it: making sure people hurt in road accidents get the help they need. This very concern is why the Supreme Court mandated the 3-year third-party insurance for new cars in a major 2018 ruling.
This important order changed how you get your car insured from the moment you buy it. In this article, we’ll explain the simple reasons for this motor insurance rule, how it affects you as a car owner, and what the guidelines are today in June 2025.
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The Core Reasons Why the Supreme Court Mandated the 3-Year Third-Party Insurance for New Cars
You might ask, “Why did the government introduce this rule?” The Supreme Court’s decision wasn’t sudden; it came from a deep concern for public safety and financial protection. Here are the simple, powerful reasons behind the 3 year TP insurance rule.
The Alarming Rate of Uninsured Vehicles
First, let’s look at a startling fact. Back in 2018, an official report showed that out of 18 crore vehicles on Indian roads, a massive 66% were running without the required third-party insurance. Can you imagine that? Two out of every three vehicles had no insurance cover. This created a huge gap in our country’s social safety net, putting millions of people at risk every single day.
Protecting the Rights and Livelihoods of Accident Victims
This brings us to the most important point: protecting people. When a vehicle without insurance causes an accident, the victims or their families often get no financial help. They are left to deal with hospital bills, loss of income, or worse, all on their own. The Supreme Court motor insurance ruling was designed to fix this. It makes sure there is always an insurance company responsible for paying compensation, giving a financial lifeline to those who suffer in road accidents.
Key Recommendations from the Supreme Court Committee on Road Safety
This major change was based on solid research. A special committee, headed by former Supreme Court judge Justice K. S. Radhakrishnan, studied road safety in India. This committee recommended that a long-term third-party insurance policy, sold at the time of vehicle purchase, was the best way to solve the problem of uninsured vehicles. The court accepted these expert suggestions.
Tackling the Problem of Non-Renewal
Finally, the court wanted to address a common human behavior: forgetfulness. Many vehicle owners would buy insurance for the first year but would not renew it afterward. To stop this, the court made it a rule to buy a longer policy from the start. This compulsory car insurance law locks in compliance for three years for cars, making our roads safer for everyone.
Source: The information presented here is based on guidelines from automotive and insurance experts at sources like The Times of India, Hindustan Times, and Business Standard, as well as official directives from the IRDAI, as reflected in the cited sources.
Unpacking the Supreme Court’s 2018 Mandate: What You Need to Know
So, what did this Supreme Court motor insurance ruling actually say? It’s quite straightforward when you break it down. The court laid out a new motor insurance rule that changed how you buy new vehicle insurance from the showroom.
The Specifics of the Order
A special court panel, led by Justices Madan B. Lokur and Deepak Gupta, made a clear directive. Starting from September 1, 2018, every new car sold in India must have a mandatory 3-year third party insurance cover. For new two-wheelers, the period was set at five years. This wasn’t a suggestion; it became a compulsory part of buying a new vehicle, designed to keep coverage active for a longer time right from the start.
Third-Party vs. Own-Damage (OD) Coverage
Here’s something that often confuses people. This compulsory car insurance law only applies to the third-party (TP) part of your policy. Think of it this way: TP insurance pays for damages to another person, their car, or their property if you cause an accident. The court’s main goal was to protect these third parties.
You still have a choice for covering your own car. This is called Own Damage (OD) cover. You can buy a “bundled” policy with a 3-year TP and a 1-year OD cover, renewing the OD part every year. Or, you can buy a standalone 3-year TP policy and a separate 1-year OD policy.
The Role of the IRDAI
To make this happen, the Supreme Court gave a job to the Insurance Regulatory and Development Authority of India (IRDAI). The IRDAI is the main authority that sets rules for all insurance companies in India.
The court instructed the IRDAI to make sure that every general insurance company created and started offering these long-term car insurance products to customers. This made sure the court’s order was put into action across the entire industry.
Source: The details about the court’s order and the specifics of insurance policies are based on information from legal news publications like LiveLaw, major news outlets such as The Times of India, and official circulars from the IRDAI, as reflected in the provided sources.
The Financial and Practical Impact on New Car Buyers
This new compulsory car insurance law changed things for everyone buying a new car. While it was made for a good reason, it had a direct effect on your wallet and your peace of mind. Let’s see how.
The Challenge of Higher Upfront Costs
The most immediate change you would have noticed was the higher cost when buying a new car. You had to pay the third party insurance cover premium for three years all at once. For example, for a car with an engine over 1500 cc, the initial insurance payment jumped from around ₹7,890 to at least ₹24,305. This made the on-road price of new vehicles more expensive.
The Long-Term Benefits and Conveniences
However, paying more at the start also brought some great advantages with your long-term car insurance.
First, you got a fixed price for your third-party insurance for three years. This means if the insurance rates went up the next year, you wouldn’t have to pay more. Your price was locked in, helping you save money over time.
Second, it offered continuous protection. You no longer had to worry about your policy lapsing because you forgot to renew it. This gave you the peace of mind that you were always legally covered while driving.
Finally, it was simply more convenient. This rule removed the yearly chore of renewing your policy. You could set it up once and not think about it for three whole years.
How No-Claim Bonus (NCB) Works with Long-Term Policies
You might wonder about your No-Claim Bonus (NCB), the discount you get for being a safe driver. You still earn it! The NCB discount is applied to your Own-Damage (OD) premium. Since you renew the OD part of your policy every year, you can claim your NCB discount annually, which helps lower that portion of your premium.
Source: The information regarding costs, benefits, and NCB calculations is based on insights from financial news outlets like The Economic Times and resources from insurance providers such as Tata AIG, as reflected in the provided sources.
The Broader Picture: Road Safety, Industry Impact, and Current Status
The 3 year TP insurance rule was about more than just a new policy; it aimed to change the bigger picture of road safety and responsibility in India. Let’s look at its wider effects and where things stand today.
Enhancing Road Safety and Social Security
The mandate was a big success in one key area: it greatly increased the number of insured vehicles on our roads. This directly strengthened the financial safety net for accident victims. With more vehicles covered by third party insurance cover, people who get injured in accidents, or their families, have a much better chance of receiving the financial compensation they are entitled to.
Impact on the Insurance Industry
For insurance companies, the rule had two sides. On one hand, they received a massive amount of premium money upfront from these long-term car insurance policies, which helped their business. On the other hand, it presented a new challenge: predicting the risk of claims over a three-year period is much harder than for just one year, which made pricing these policies tricky.
Enforcement Through Technology: The VAHAN Portal
You might ask, “How do the police check this?” Technology makes it easy. Your new vehicle insurance details are now linked to the government’s VAHAN database. This is a central online record of all vehicles. It allows traffic authorities to scan a QR code or enter your vehicle number to instantly verify if you have a valid policy, making the compulsory car insurance law easier to enforce.
Important Update: The 2020 Change and Current Mandate
Now, for a very important update. In August 2020, to help make new vehicles a bit more affordable, the IRDAI removed the rule that required buying long-term packaged policies (which combined both TP and Own Damage cover).
However, you must know that the Supreme Court’s original order for a compulsory 3-year Third-Party only insurance cover is still in effect. This remains a legal requirement under the Motor Vehicles Act when you buy a new car.
Source: The information about the mandate’s impact, technological enforcement, and current legal status is compiled from reports by major news organizations like The Economic Times and The Times of India, and official circulars from the IRDAI, as reflected in the provided sources.
Frequently Asked Question (FAQs)
Is 3-year insurance still mandatory for new cars in 2025?
Yes, the mandatory 3-year third-party liability cover for new cars is still in effect as per the Supreme Court’s directive and the Motor Vehicles Act.
Why did the Supreme Court mandate the 3-year third-party insurance for new cars?
To ensure accident victims receive compensation, as a large percentage of vehicles were uninsured. This ruling aimed to increase insurance penetration and improve road safety.
Can I buy a 1-year comprehensive policy for my new car?
You must buy a 3-year third-party policy. You can bundle this with a 1-year own-damage cover and renew the own-damage part annually.
What is the difference between third-party and own-damage insurance?
Third-party insurance covers legal liability for damages caused to a third person or property. Own-damage covers damage to your own vehicle.
Does the 5-year rule apply to cars as well?
No, the 5-year mandatory third-party insurance rule applies only to new two-wheelers. For new cars, the mandatory period remains three years.
Final Thoughts
So, the reason for the Supreme Court motor insurance ruling was simple and serious: it was a direct response to a public safety crisis. With millions of vehicles on the road without insurance, accident victims were often left with no financial support. This compulsory car insurance law was created to fix that problem.
Even though it made buying a new car a bit more expensive at first, the court made a clear choice. It decided that the safety and financial security of all citizens were more important than a lower upfront cost for an individual.
This decision sends a strong message. It shows that having third-party insurance isn’t just a rule you have to follow; it’s a key part of being a responsible vehicle owner and contributes to the well-being of everyone on the road.
