IRDAI Motor Insurance Circular: 7 Key Changes You Should Know
IRDAI Motor Insurance Circular sets new rules for vehicle insurance, making passenger liability, occupant accident protection and own-damage cover optional with separately disclosed premiums.
IRDAI Motor Insurance Circular introduces a four-layer policy structure from December 15, 2026, giving car and two-wheeler owners greater flexibility in choosing insurance covers.
New Delhi, IRDAI Motor Insurance Circular: The Insurance Regulatory and Development Authority of India (IRDAI) on November 3 issued a circular introducing a four-layer structure for private car and two-wheeler insurance policies, following a Supreme Court judgment that called for greater clarity in motor insurance coverage. The circular, dated November 2, will come into effect from December 15, 2026, giving vehicle owners the option to choose individual covers rather than purchase them as part of a bundled policy.
The regulatory changes follow the Supreme Court’s judgment in National Insurance Co. Ltd. v. Thungala Dhana Laxmi, which highlighted the need to clearly define insurance protection available to vehicle occupants. In response, IRDAI has introduced a separate, optional passenger liability cover, alongside changes to personal accident protection, premium disclosures and customer consent requirements.
Under the new framework, third-party liability and personal accident cover for the owner-driver will remain mandatory, although owners can opt out of the latter if they already have personal accident coverage elsewhere. Passenger liability, personal accident cover for occupants and own-damage insurance will be optional, with insurers required to disclose the premium for each section separately.
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The move is aimed at making motor insurance purchases more transparent and giving policyholders greater control over the coverage they choose. Insurers will also have to obtain explicit consent for each section and provide customers with a mandatory information sheet at the point of sale.
Key Changes Under IRDAI’s New Motor Insurance Rules
1. Passenger Liability Cover Becomes a Separate Option
IRDAI Motor Insurance Circular: One of the biggest changes is the introduction of a separate passenger liability cover under Section II.
Under the earlier motor insurance policy, insurers generally did not cover their liability towards passengers and paid drivers beyond the legal minimum. This meant that families of passengers injured or killed in an accident could find it difficult to recover compensation from the vehicle’s insurer.
Under the new rules, vehicle owners can purchase an additional cover that protects them against legal liability if a passenger, pillion rider or employee-driver is injured or killed in an accident.
If the owner buys this cover, the insurer will also be responsible for eligible passenger injury and death claims that were previously excluded under the standard policy.
However, the cover will not apply to the vehicle owner, their parents, spouse or children. It will also not cover drivers who are not employees of the vehicle owner.
The protection will be limited to the vehicle’s seating capacity and will not apply if passengers are being carried for hire. Vehicle owners will be able to choose the amount of liability cover they want.
2. Customers Must Choose Which Covers They Want
IRDAI has made it mandatory for insurers to obtain the customer’s consent for every section of the motor insurance policy.
While purchasing insurance, customers will have to select whether they want each optional cover. They can either opt in or opt out of individual sections.
This process will apply to both online and offline purchases. For online transactions, insurers will have to obtain confirmation through an OTP sent to the customer’s registered mobile number or email address.
The completed form showing the customer’s choices will become part of the insurance policy. Insurers cannot issue a policy without this form.
3. Customer Information Sheet Becomes Mandatory
Insurers will have to provide a Customer Information Sheet (CIS) to buyers at the time of purchasing a policy.
The document will explain the different covers available under the policy and help customers understand what is included and what is not.
The requirement is intended to ensure that buyers have clear information before deciding which covers they want to purchase.
4. Insurers Must Show Premiums Separately
Under the new framework, insurers will have to display the premium for each section separately in the policy document.
Customers will be able to see how much they are paying for third-party insurance, passenger liability, personal accident protection and own-damage cover.
This will help vehicle owners understand the cost of individual covers instead of seeing only one combined premium. It will also make it easier for customers to compare insurance policies offered by different companies.
5. Existing Policyholders Can Add Passenger Cover Later
Vehicle owners who already have a motor insurance policy will not have to wait until renewal to purchase the new passenger liability cover.
They can add this protection during the existing policy period by paying an additional premium.
The cover will start from the date the insurer issues the endorsement. Customers will have to purchase it from the same insurer that issued their third-party insurance policy.
There will be no need to cancel the existing policy or purchase a completely new one.
6. Personal Accident Cover Gets Standardised
IRDAI has also prescribed standard benefits for personal accident insurance covering vehicle owners and occupants.
The payout will depend on the nature of the injury:
- Death in an accident: 100% of the insured amount.
- Loss of two limbs or both eyes: 100%.
- Loss of one limb or one eye: 50%.
- Permanent total disability: 100%.
The death or disability must occur within six months of the accident to qualify for the prescribed benefits. Self-inflicted injuries and suicide will not be covered.
There are also specific rules for personal accident cover for vehicle owners. This benefit will be available only to individual owners, not companies or firms.
If a person owns multiple vehicles, the cover will apply to only one vehicle. In case of an accident, the claim will first be considered under the policy of the vehicle involved. Only one policy will pay for a particular accident.
7. Insurers Retain Flexibility Over Own-Damage Cover
While IRDAI has introduced a common four-layer structure, insurance companies will continue to have flexibility in designing their own-damage products.
They can decide the premiums, introduce additional covers and modify exclusions for own-damage insurance.
This means insurers can continue to compete through pricing, add-on benefits and product features. However, they cannot change or restrict the basic four-layer structure prescribed by IRDAI.
8. New Restrictions on Cancellation of Third-Party Insurance
IRDAI Motor Insurance Circular: IRDAI has also tightened the rules for cancelling third-party motor insurance policies.
Under the new framework, a third-party policy can be cancelled only in three situations: double insurance, proven fraud or total loss of the vehicle.
If a vehicle is sold, the policyholder will need to provide proof of new third-party insurance before cancelling the existing policy.
The regulator has also prescribed a refund structure for cases involving double insurance. However, customers will not receive a refund if a claim has already been made under the policy.
9. Rules for Policy Transfer and Rejected Claims
The circular also addresses situations involving the death of a policyholder and rejected insurance claims.
If the only insured person dies during the policy period, the insurance policy will continue for three months or until its expiry, whichever comes first. This gives the legal heirs time to transfer the policy.
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The circular also states that a rejected claim will be treated as abandoned if the policyholder does not initiate legal proceedings within 12 months of the rejection.
10. Four-Layer Motor Insurance Products to Be Available on Bima Sugam
IRDAI has also linked the new motor insurance structure with Bima Sugam, the digital insurance marketplace.
Insurance companies will have to make their four-layer motor insurance products available on the platform from December 15, 2026.
This will bring the new insurance products into the digital distribution system and allow customers to access the different covers through the platform.
IRDAI Motor Insurance Circular: What Do the New Motor Insurance Rules Mean for the Industry?
The new framework will bring changes not only for vehicle owners but also for insurance companies, agents, brokers, dealers and other distribution partners.
IRDAI Motor Insurance Circular – Vehicle Owners: More Choices and Greater Responsibility
For vehicle owners, the biggest benefit will be greater clarity about what their insurance policy covers and how much each cover costs.
The new passenger liability option will also give customers an opportunity to protect themselves against certain claims involving passengers.
However, buyers will now have to make more decisions while purchasing insurance. Those who do not understand the different covers could end up opting out of protection they may actually need.
IRDAI Motor Insurance Circular – Insurers: Changes to Products and Technology
Insurance companies will have to update their policy documents, premium structures, customer information sheets and consent forms before the new rules take effect.
They will also need to make changes to their technology systems and work out pricing for the new passenger liability cover.
With the December 15, 2026 deadline, insurers will have a limited period to prepare their products and systems for the new framework.
Competition could also increase in the own-damage and add-on segments, where companies will continue to have flexibility in designing products.
IRDAI Motor Insurance Circular – Dealers, Agents and Brokers: Changes in How Insurance Is Sold
The new rules will change the way motor insurance is sold through vehicle dealers, agents, brokers and online aggregators.
These platforms will have to clearly explain every section of the policy and allow customers to choose whether they want each optional cover.
They will also have to collect customer consent through OTP verification and provide the mandatory Customer Information Sheet.
The new passenger liability cover could also create an additional opportunity for intermediaries to offer protection to existing policyholders during the policy period.
IRDAI Motor Insurance Circular – Claims and Accident Tribunals: A Defined Route for Passenger Claims
The introduction of a separate passenger liability cover could make a difference in accident cases involving passengers and employee-drivers.
When vehicle owners purchase this cover, eligible passenger injury and death claims will have a defined route for seeking compensation from the insurer.
This could reduce situations where families of accident victims have no insurance cover to turn to for compensation, subject to the policy conditions and limits.
IRDAI Motor Insurance Circular – Regulatory Direction: A Push Towards Transparency
The new four-layer structure is part of IRDAI’s wider effort to make insurance products simpler and more transparent.
By separating different covers, showing individual premiums and making customer consent mandatory, the regulator wants buyers to have a clearer understanding of their insurance policies.
The integration with Bima Sugam is another part of this effort to move towards a more structured digital insurance distribution system.
The actual impact of the changes will depend on how insurers price the new covers, how intermediaries explain the options and whether customers understand the protection they are choosing.
