IRDAI's four-layer motor insurance policy: What car and bike owners need to know

When you buy motor insurance, do you know whether your policy covers only your legal liability towards third parties, or also protects the people travelling in your vehicle? Do you know how much of your premium goes towards protecting your vehicle against damage and how much towards other insurance covers?

To make these distinctions clearer, the Insurance Regulatory and Development Authority of India (IRDAI) has introduced a four-layer motor insurance policy structure for private cars and two-wheelers, effective 15 December 2026.

The move follows the directions of the Supreme Court of India in Civil Appeal No. 14369/2025, National Insurance Company Ltd. vs. Smt. Thungala Dhana Laxmi & Others.

For vehicle owners, the important change is that different components of motor insurance will be clearly identified, allowing them to understand the protection available and make a more informed decision about the covers they wish to purchase.

What are the four components of your motor insurance?

Under the new framework, motor insurance will be divided into four sections. Each section addresses a different type of insurance protection.

1. Third-party liability (mandatory)

Third-party insurance is the basic compulsory motor insurance cover. It protects you against specified legal liabilities arising from injury, death or property damage caused to a third party in an accident involving your insured vehicle.

Under the new framework, this cover remains mandatory.

2. Legal liability towards occupants and pillion riders (optional)

If you travel with family members, friends or other passengers, you may want to understand whether your policy provides the relevant legal liability cover for them.

Section II deals with the legal liability of the insured towards occupants travelling in a private car or a pillion rider on a two-wheeler. It also includes employees of the insured, subject to the applicable policy provisions.

This cover is optional and can be selected by paying an additional premium.

It is important to understand that this is a legal liability cover. It is different from personal accident insurance for passengers.

3. Personal accident cover (mandatory and optional components)

Personal accident protection is divided into two components under the new structure.

4. Own damage (optional)

An accident can damage your own vehicle, even when you have valid third-party insurance.

Section IV deals with loss of or damage to the insured vehicle. It is an optional component under the new structure.

The insurer may offer own-damage protection at a separately disclosed premium. The applicable coverage, exclusions and conditions will be specified in the policy.

Will you be able to choose the covers you need?

Yes. The purpose of the four-layer structure is to help customers understand the available insurance options and make an informed selection.

Third-party liability remains mandatory. The owner-insured personal accident requirement also continues to apply, subject to the applicable rules. Occupant legal liability, additional personal accident cover and own-damage protection are optional components.

Will you know how much you are paying for each cover?

One of the most useful changes for customers is the requirement for separate premium disclosure. Under the new framework, IRDAI requires insurers to clearly disclose the actual coverage offered and the premium charged against each section.

The circular states: "The schedule shall reflect the actual coverage offered along with premium charged against each section in a transparent manner."

Already have a third-party policy? You may be able to add occupant liability cover

If you already have a third-party motor insurance policy and subsequently wish to add Section II coverage for occupants or pillion riders, IRDAI has provided for this option during the policy period.

The additional cover will be available on payment of an additional premium.

• You must obtain the additional cover from the same insurer that issued your existing third-party policy.

• The additional protection will start only from the date and time mentioned in the endorsement issued by the insurer. IRDAI has also clarified:

"No existing Motor Third Party Insurance need to be cancelled by either the insurer or the insured for opting the additional covers," IRDAI stated.

What documents should you receive when purchasing motor insurance?

The new framework makes two customer-facing documents important at the point of sale.

This form will explain the four sections and record the covers selected by you. It must be completed and will form part of your insurance policy.

The insurer must issue a Customer Information Sheet at the point of sale, helping you understand the insurance protection being offered.

Whether you purchase your policy online or offline, these requirements apply.

When will the new framework come into effect?

The four-layer motor insurance policy structure will come into force on 15 December 2026.

IRDAI has also directed insurers to complete integration with Bima Sugam simultaneously so that the policies are available through the platform from the same date.