The Insurance Regulatory and Development Authority of India (IRDAI) has directed general insurers to implement a four-layer motor insurance structure for private cars and two-wheelers from December 15, 2026, following directions from the Supreme Court in the National Insurance Company Ltd. vs Thungala Dhana Laxmi case.
Under the new structure, motor insurance will be divided into four sections: third-party liability, legal liability towards occupants or pillion riders, personal accident cover and own-damage protection. Third-party liability will remain mandatory, while occupant liability and own-damage protection will be optional. Personal accident cover for the owner-insured remains mandatory, while additional cover for occupants, pillion riders and other drivers will be optional.
The framework is intended to improve customer choice and transparency by clearly showing what protection a policyholder has selected and what each component costs. Insurers must adopt standardised policy wordings and obtain a completed Customer Option Form for every private car and two-wheeler policy issued under the new structure.
Insurers will also have to provide a Customer Information Sheet (CIS) at the point of sale. The policy schedule must separately disclose the coverage and premium applicable to each section, creating a documented record of the customer’s insurance choices.
Existing third-party policyholders will be permitted to add legal liability cover for occupants or pillion riders during the policy period by paying an additional premium. They will not need to cancel their existing third-party policy, although the additional cover must be obtained from the insurer that issued the original third-party policy.
While the policy structure and wording will be standardised, insurers will retain flexibility to price own-damage cover according to market conditions and innovate with additional coverage, subject to IRDAI’s requirements.
IRDAI has also directed insurers to integrate the four-layer structure with Bima Sugam by December 15, 2026, so that the revised policies are available on the digital insurance marketplace from the implementation date.
The change represents a significant shift towards greater transparency in motor insurance, with clearer separation of mandatory and optional protection and a stronger documentary trail of customer choices.
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